| Topic: | Re:Re:Re:Re:Re:Re:Re:Re:Re:Re:Taking my State Pension - help please ! | |
| Posted by: | Sam Hearn | |
| Date/Time: | 09/05/15 12:58:00 |
| The ten year payback period ignores the impact of inflation (a pound in year 5 will buy less than a pound in year one) and any interest/dividends earned on the pension if some or all of it were invested as Maggie suggests that she will. The impact of inflation will make the payback period longer. Whether or not Maggie's pension is taxable (all or in part) depends on how much her part time earnings are. The current tax free allowance is £10,500 and maximum state pension is I think £6,029.40 PA. You can do the maths. It is quite difficult to calculate the notional break-even payback period since the pension is (thanks to the coalition government) going to increase by the greater of i) the average percentage growth in wages ii) the percentage growth in prices measured by the Consumer Prices Index (CPI) or iii) 2.5%. I think that this should reduce the notional payback period. However as Maggie intends to invest her pension in an ISA you need also to bear in mind that the ISA may well go up in value and that the tax free income from it will go up over time (especially if it is reinvested). This will increase the notional break-even payback period. For those with substantial savings and investments it may be sensible to draw down the pension at the earliest opportunity and make regular gifts to children, grandchildren etc thereby reducing the inheritance tax on your estate on death. You cannot take it with you. All of this needs to be checked on with a professional adviser. |