What to do with my State Pension

DanArmour

I have today received a notice concerning my state pension which suggests that I can decide not to have it paid to me at this time but to allow it to accumulate and then withdraw it as a lump sum at a later date (I am still working and intend to do so for the forseeable future). However it would seem to me to make more sense to have the pension paid to me and to then invest the amount received into an ISA or something similar. I would be grateful for any advice or suggestions.

jancee_2

DanArmour wrote: »

I have today received a notice concerning my state pension which suggests that I can decide not to have it paid to me at this time but to allow it to accumulate and then withdraw it as a lump sum at a later date (I am still working and intend to do so for the forseeable future). However it would seem to me to make more sense to have the pension paid to me and to then invest the amount received into an ISA or something similar. I would be grateful for any advice or suggestions.

First of all, if you are going to continue working then be aware that pension counts as taxable income so you need to find out if your personal allowance will accommodate it.

If you do defer you have two options. The minimum period you can defer for is five weeks, no maximum. For every five weeks you defer your weekly amount would rise one per cent. That comes at about 10.4 per cent over a year. After a minimum of a year deferrment you can, as you say, take the lump sum plus interest of 2 per cent above BofE base rate. In the latter case your weekly amount would remain the same.

MrMicawber_2

I've just done a quick calculation which it might be worth checking. If you defer a £6k pension for 2 years it would take about 14 years for the deferred pension to catch up assuming an 'active' state pension increased at 4% per year.

So you would be 81 before the benefit of deferring really kicked in. At this 14 year point your deferrend pension would be worth about £11,250 per annum while if you hadn't deferred it would be worth about 10k per year.

If you live longer the benefit increases. After 20 years the one would be about £14,250 while the other would be about £12,600.

Of course investing / saving your actual pension would offset this this difference somewhat.

It's a bit of a risk based decison and rather subjective. I'd be tempted to take the money and save it because we don't know what's going to happen to state pensions and legislation in the future PLUS it is a bit of a bet on how long you are going to live.

Number one consideration above all else though is to make sure you have enough retirment income in the first place then anything else is a bit of a bonus.

BY THE WAY I THINK MY CALS ARE OK BUT I'D SUGGEST YOU GET THEM CHECKED.