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Is there a best month to retire
morris neson
Posted: 11 years ago
#1

Joined: 22/01/2007(UTC)
Posts: 54


I am sorry to ask but is there a best month to retire regarding tax implications. I have been advised end of the tax year beginning of the tax year and even half way through.
I am 61 and intend to retire this year, I am a ordinary PAYE employee . I am not a higher rate tax payer. I will be receiving around £500 per month from my works pension. The majority of my savings are within a Stocks and shares ISA.
My wife is self employed and will continue working for at least another 5 years She has her own SIPP.
Any advice much appreciated.
Morris
martyn of sheepy
Posted: 11 years ago
#2

Joined: 02/12/2012(UTC)
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Keep the wife working and any month will do.
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morris neson on 07/01/2014(UTC)
Alan Selwood
Posted: 11 years ago
#3

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Given that your pension is likely to be less than your salary, unless you know something that the rest of us don't, you will probably find that the best net-of-tax deal is to keep working as long as you can. (For sheer pleasure, however, you may prefer to leave as soon as you can, but that is not a tax-related decision!).

If, however, you just want to look at a single tax year, and decide when in that year to retire, the factors are likely to be these:
a) If you are in a defined-benefit pension scheme, and do not have maximum service with the employer, leaving at or near the end of the tax year will have the biggest beneficial effect on your pension, because you will have chalked up more service and therefore a bigger pension, year in and year out.
b) If you are in a defined-contribution scheme, the same probably applies, but the outcome will be dependent on the fluctuating value of the pension fund attributed to you on whatever day you choose to start drawing on it. The value of stockmarket holdings in your fund will be unpredictable until the very day, so it becomes guesswork. But any company contributions may be enough on their own to justify working to the end of the tax year in order to extract the most benefit from those employer contributions.
c) If your sole income (i.e. company pension but no taxable investment income) is £500 per month gross, or £6,000 p.a. gross, you will be a 0% taxpayer in the first full tax year in which you become a pensioner, with £4,000 of unused personal allowance out of the £10,000 allowance available to those under 65 in 2014-2015.
So if your wife is a taxpayer, and has taxable investment income of any significance it would be cost-effective for any interest-producing holdings to be in your name, not in hers (dividend income will not make any difference, since the tax credit cannot be reclaimed by non-taxpayers), - but neither you nor she should let the 'tax tail' wag the 'common-sense dog'.
d) If there is no pension difference to you whenever you retire, because you have full service already and the pension scheme rules state that you would get no extra credit for working further, you may like to consider going at the point in the tax year when gross salary received plus gross pension for the remaining months of the tax year when added together give a total amount of at least £10,000 so that you don't waste tax-free income of up to the £10,000 total for the tax year.
e) Retiring early prolongs lifespan in many cases if you have lots of interesting things to do in retirement.
f) Retiring early often reduces lifespan if you only sit around in retirement feeling bored, unless the job is stressful and stopping earlier is in itself felt to be a blessing!
g) If the company pension fund appears to be a fixed sum p.a. with no scope for joint-life pension or widow's benefit, or has other unsatisfactory or inadequate benefits for your personal circumstances, talk to the pension department about tailoring the options available to you; and/or see if by chance you can move your pension fund into a SIPP so that you can tailor the pension format and start date that suits you better than what the company offers (but this is a very complex subject, so get full information from the employer and expert independent advice before signing anything!!).
If your health is in any way capable of being treated as 'impaired' (because of disease, smoking, or whatever), a group scheme will not normally be able to give you a pension pays more per annum to reflect a statistically shorter expected lifespan - however a SIPP fund can be turned into an annuity that DOES take account of 'impaired life'.

Well, that's my quick three penny worth. Wait now for other comments, and then also, if you can, take professional advice.
5 users thanked Alan Selwood for this post.
morris neson on 07/01/2014(UTC), martyn of sheepy on 07/01/2014(UTC), Guest on 08/01/2014(UTC), Freda on 08/01/2014(UTC), Maheschandra Rajani on 08/01/2014(UTC)
Martyn Phillips
Posted: 11 years ago
#4

Joined: 08/01/2014(UTC)
Posts: 1

I am thinking about taking my a company pension that I have and reduce my hours of work in my current job.

I plan to take my pension @ 55 years of age in March 2015.

I will continue to be employed on reduced hours and will earn £17k pa.

Will I pay National Insurance on my pension income which will be £12k pa?

John Griffiths
Posted: 11 years ago
#5

Joined: 16/12/2011(UTC)
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Morris - given that your wife is self-employed perhaps when you are retired you can assist her in her business and she can pay you to mop up that unused tax allowance?
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morris neson on 08/01/2014(UTC)
Alan Selwood
Posted: 11 years ago
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John Griffiths;22373 wrote:
Morris - given that your wife is self-employed perhaps when you are retired you can assist her in her business and she can pay you to mop up that unused tax allowance?

But watch that the taxman doesn't treat it as a case of 'pay handed over but work not really done', as they have tightened up on this sort of thing a lot in the last few years.
(Only politicians get away with such 'reprehensible behaviour'!)

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morris neson on 09/01/2014(UTC)
John Griffiths
Posted: 11 years ago
#7

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Alan - I think that difference is quite small and not enough to bother the taxman. Anyway they only have to demonstrate that real work is done and there is no problem.
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morris neson on 09/01/2014(UTC)
Alan Selwood
Posted: 11 years ago
#8

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John Griffiths;22386 wrote:
Alan - ....they only have to demonstrate that real work is done and there is no problem.


I agree.

I was simply pointing out that in recent years, the old dodge of "putting the wife/husband on the books to get tax reduction for nominal or no work actually done" may get treated like any other artificial (tax avoidance) scheme - whether they pursue anyone will always depend on the material facts, plus the cost-effectiveness of the pursuit / degree of supposed tax avoidance!

They do have a declaration now in all tax returns where you have to state whether or not you have 'made use of any tax avoidance schemes', so if you do something they think costs tax and you deny it, they can hit you more severely because you 'told an untruth' (as judged by THEM).
1 user thanked Alan Selwood for this post.
morris neson on 09/01/2014(UTC)
HUFC
Posted: 11 years ago
#9

Joined: 20/05/2010(UTC)
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Morris - if the pension fund reduces your pension on account of early retirement (say the normal retirement age is 65) then extra months of pensionable service will increase your pension if you haven't already reached the maximum permitted under the scheme. Not a tax-related answer, but may be relevant
1 user thanked HUFC for this post.
morris neson on 09/01/2014(UTC)
Sarah Willis
Posted: 11 years ago
#10

Joined: 27/01/2014(UTC)
Posts: 9

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