There is a famous saying “If something sounds too good to be true, it probably is” Source: Oxford reference. This saying is the sceptical view that if something sounds so good there must be a catch. The saying derives from Thomas Lupton’s Sivqula: Too Good To Be True from the year 1580. However, sometimes something that sounds too good to be true actually is true. It’s the exception that proves the rule! Yet another quote. That’s enough of sayings for now.

As mentioned in my blog last week I will start taking my state pension in September next year when I reach age 66. I have no intention of retiring before at least age 75. However, I will not defer my state pension because my wife, Cholpon, will only receive a state widow’s pension of 3 months’ worth of my state pension which will be about £10,000 p.a. So the maximum she could claim would be a paltry £2,500.  That’s not much considering I have paid National Insurance for my entire working life so far of 47 years!



However, as I will continue working, my state pension will be taxed gross at my top rate of Income Tax unless I find a way of claiming back the tax. That’s what I plan to do. The simple solution is to re-invest my entire state pension into a personal pension! I will be able to do this because I will continue to have earned income to qualify for making pension payments at this level. I will summarise my plan below.

Individual personal pension contributions are made net of basic rate tax at 20%. So if I were to re-invest £10,000 net into a personal pension each tax year, HMRC will top up my pension contribution by 25% or £2,500 meaning my pension contribution becomes £12,500 p.a.

However, it gets even better. You see I am a higher-rate taxpayer so I am entitled to reclaim a further 20% Income Tax on the revised gross contribution of £12,500 p.a. That means I will receive further tax relief of £2,500 (£12,500 x 40% = £5,000 – £2,500 tax relief at source) either by way of a tax repayment or adjustment to my tax code. So the contribution has cost me £7,500 after tax relief.



So the government will fund my personal pension contributions from my age 66 until age 75 by £10,000 p.a. And I will benefit from £5,000 p.a. in tax reliefs. Furthermore, my state pension will increase each year in line with a very generous indexation rate known as the Triple Lock. So in practice, the £10,000 p.a. state pension over 9 years (£10,000 x 9 = £90,000) could easily amount to £150,000 if the Triple Lock remains in place. Even without the Triple Lock the government’s contributions could easily total, say, £125,000.

What’s more there is likely to be investment growth on these contributions too. It is not unrealistic to expect the cumulative contributions of £125,000-£150,000 to grow to, say, £250,000 over the following nine years based on my attitude to risk.

Hey presto, the government has just contributed £250,000 into an Inheritance Tax-free pension over nine years!

There is yet another benefit of this strategy. My wife Cholpon will be able to inherit my entire personal pension fund of £250,000, step in my shoes, and effectively draw a “widow’s” pension of, say, £10,000 a year under Inherited Drawdown.



This is a smart way to recycle the state pension and effectively create a widow/er’s pension for your spouse. Admittedly it will only benefit people who continue to work past state retirement age which isn’t right for everyone. Nonetheless, it is a strategy that will work and I recommend it to any married person who decides to continue working past the state retirement age who doesn’t need the state pension yet.  Let’s face it the state widow’s pension for state pensioners who reach state pension age after 5.4.16. is pretty low and, for most married people, not worth deferring the state pension for. You know it makes sense.*



The Financial Conduct Authority does not regulate taxation advice, estate planning or Inheritance Tax planning. The information provided in this article is for educational purposes only and should not be considered financial or investment advice. Please consult with a qualified professional before making any investment decisions. The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.


Tony Byrne

Chartered and Certified Financial Planner

Managing Director of Wealth and Tax Management

If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email