Snowy560

Hello, I am hoping someone can help. I am full of Qs today.

Before I went away to Europe on hols, I received notification that I was eligible to start receiving my small private pension from next year and that I can decide whether to take a lump sum and residue pension; the full pension; or defer and that I should take financial advice as to how to proceed.

So can anyone recommend who could help me with the decision, based on the fact that I'm not planning to retire as such for a good few years yet, I live in Canada (so know that generally speaking the lump sum is taxable). Do I need an actuary and should it be a Canadian or British one? Or can an accountant do the job of advising me?

Thanks in advance.

Hurlabrick

I assume the pension you are referring to is a British pension. Is it a pension you got from a UK company your worked for and do you know if it is a defined benefit / final salary type pension (common for civil service / police etc.) or a simple defined contribution type pension.

In any event, probably best to take British financial advice.

I would start here and go from there:

https://www.pensionwise.gov.uk/en/ap...content=Advice

Pulaski

How small is small? (You don't need to answer that.) You may end up paying more for the advice than the pension justifies. As a practical point you may find it difficult to get anyone in the UK to advise you if you are tax resident outside the UK.

Generally people's income falls when they retire, so pay tax at lower rates, would would suggest that deferring is the preferred option from a tax perspective.

What is your life expectancy? Have your parents and other blood relatives lived long into retirement? if not, drawing your pension early, and reinvesting the money if you don't need it immediately, would make sense from a "getting the most from your money perspective".

Do you have a need for more money now, for example to pay off loans or a mortgage? This would also suggest that drawing your pension early might be the best option, even taking the lump sum and paying the tax if you have a loan at a high interest rate, say 10%+.

Snowy560

Thank you both. It's small but not insignificant: about £8000 a year or a lump sum of about 5x that amount and a smaller pension. It was an investment bank pension. Yes UK. My parents died relatively young but I'm healthier than them and my grandfather lived well into his 80s. I'm obviously planning to keep going if I can! I had my kids v late in life and I read a Finnish study which says having kids late has been found to be quite a good predictor of longevity if it was natural as opposed to assisted conception. Back to pensions: do people defer the decision for a year or two and what sort of advantages/disadvantages might there be to so doing?

Pulaski

Well the pension will go up for every year that you defer - because your predicted lifespan will fall (not by a whole year though). While you can change your mind, from defer to draw, at any time, IMO it would be best to have a strategy and defer for x years, e.g. until you retire, which will get you a bigger pension and your marginal tax rate (the highest rate you pay) will he lower.

Another approach might be, depending on what opportunities there are to invest in tax-advantaged investments in Canada, is to draw your pension and put 100% (or as much as possible) of the monthly payments into a tax-deductible investment, such as a pension fund, so you get the money into Canada and without paying tax on it. That is something you should be able to get advice on very easily locally in Canada, because it isn't certain (to me at least), whether such a strategy would make sense to you personally, or in Canada. .... My father did something similar in the UK, drawing the state pension which he didn't need because he was still working, and put it in an ISA and so built up a nice little lump sum tax free to enjoy when he finally did retire.

Hurlabrick

Sounds like a final salary / DB arrangement.

Generally, if you defer, the annual amount payable increases (coz actuarially speaking, you have fewer years left to live!). It depends on what you have elsewhere to provide for a pension for your old age. If you can easily fund your retirement from other sources, and this pension is 'a bit of fun', then take as big a lump sum as you can and enjoy it. You will of course be taxed in Canada as this is overseas income (make sure you are not also taxed in the UK - I assume you did the R85 thing a long time ago for the UK?).

Snowy560

There's a double taxation agreement and my experience (because I have a small UK contract for tutoring) is if I pay in the UK and can prove it, I get credited in Canada.

Pulaski and HBrick: this is very helpful advice and helping me to think around the issues. It's also helped me see I don't have to feel pressurized into making an immediate decision because if I defer I don't lose anything as such.

Thank you.

Hurlabrick

To give you food for thought, go back to the trustees and ask for quotes for what you would get if you deferred for 1, 2 and 5 years - you should see your annual pension amount go up. Make the b*ggers work for it!

Snowy560

Yes thanks ... I will do that!