Do I have to take my State Pension at retirement age? Senior Independent Adviser at Fix My Pension, Andrew Collyer Worsell, recently had a client that deferred his state pension. The client already had savings to fund his retirement so opted to take his state pension in one lump sum at a later date. The deferred state pension amounted to around £68,000 and as he is a nil rate taxpayer – no income. The whole of the lump sum was tax-free!
Here are some reasons why you might want to defer your State Pension.
1. It’s a good investment choice
For every 12 months you defer your pension you get 10.4% extra (before 5th April) and 5.8% extra (after 5th April 2016). If it’s not required, then the money can be left where it is and attract a good rate of interest.
2. Choose when to pay tax
Any state pension is taxable, irrespective of the size of the payment. If you are a basic rate taxpayer, you will pay 20% on the lump sum before it is added to your income. If you pay the higher rate, you would have 40% deducted. A non-tax payer would pay no tax, regardless of the size of the lump sum. So it makes sense to take advantage of this by deferring your state pension until a time when it will come to you at your its lowest taxable rate.
3. Better Timing and More Control
You could organise your finances to pay less tax – for example, you were the director of a company, on the year that you planned to get your pension lump sum, you could take a lower salary and keep your income to within the basic tax allowance band and delay dividends until the following year.
How Does It Work?
An individual would need to defer their pension for a minimum five months. Should that individual die before a lump sum is paid out, it will be passed on to the individuals surviving relatives.