Ask the Expert: I need my pension to top up my income — how do I manage that?

Carl Lamb, managing director of Almary Green

Carl Lamb, managing director of Almary Green - Credit: Archant

This week our reader wants to know how to top up their income with pension. Carl Lamb of Almary Green responds.

Reader question:

I get my state pension next year but am hoping carry on working at least part time for a few years (I've already discussed this with my employer and he's happy for me to do so).

I have a personal pension fund which is currently worth about £170,000. I'm going to need some pension income to top up my earnings but wonder if I should delay taking the state pension and start drawing on my personal pension – or vice versa? What do you think?

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Almary Green response:

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This is a difficult question to answer without knowing all your circumstances, but I can give some general guidance. The particular aspects to take into account are the shortfall you have to fill, your income needs in retirement and how long you are hoping to continue working after the state pension age. Let's firstly look at how deferring the state pension will affect your ongoing pension income. You get an additional one per cent of pension for every nine weeks that you defer, so just under 5.8 per cent per year deferred, provided you defer for more than nine weeks. The important thing to remember about your state pension is that it's all or nothing: you either take it in its entirety or defer. You will need to factor in your tax position too: your state pension counts as income for tax purposes so you could pay more tax on your earnings than necessary if you have excess income. If you opted to take your state pension, you could perhaps contribute any excess earned income to your personal pension – and you would get tax relief on your contribution. Your personal pension is presumably invested for growth so the longer you leave it, the higher the overall value might be (although investment returns can't be guaranteed, of course). However, you could draw an income from your pension savings as needed, leaving the remainder invested, potentially withdrawing enough to fill the shortfall while you are working and increase the amount you withdraw later – provided you have enough in your pension fund to meet your retirement needs over the longer term. You also need to be aware that the total amount you can contribute to your pension savings drops to just £4,000 a year (2019/20) after you start taking flexible withdrawals so you must ensure that your contributions (workplace scheme/personal pension) don't then exceed this figure. This is a complex decision: I suggest you get advice if you feel you might struggle with working out the numbers to find the most advantageous route.