Deferred State Pension Calculation

zygurat789

Calculation for increased pension
Pension at start (say) £100
Pension one year later £105 + deferred 10.4% £115.92
(If taken after one year)
Pension two years later £110 + deferred 20.8% £132.88
(If taken after two years)
Pension three years later £115 + dferred 31.2% £150.88 (If taken after 3 years)
Etc
So because you work an extra three years your pension increases from £115 to £150.88, fully index linked (OK only CPI) but paid from the safest company in the land.

uk1

I'm sorry but what you have said is different from what I've been told - assuming I understand you correctly.

Using your numbers, both the Pensions Advisory Service and the DWP are saying that if you defer for 3 years then it would be £100 ie your original pension - not the "inflated pension" plus the deferral factor.

hugheskevi

I agree with zygurat789 - I looked around for official documents to reference but can't find any definitive examples unfortunately.

The best reference is normally a booklet called NP46 from DWP which is a technical guide to State Pensions (technical but not incomprehensible language).

I've been involved closely with deferral, and zygurat789's understanding of how it works is also my understanding.

uk1

That was also my understanding as well ...... hence I didn't believe it when both The Pensions Advisory Service and the DWP BOTH stated that it was frozen at the pension you would have got when you deferred and then starts increasing only when you start to take it. Unluckilly there is nothing so far in the documents I've read that makes it any clearer or contradicts what I have now been told!

That's why I posted!

However oin NP46 on page 64 it states:

How much you get
Before 6 April 2010
For every six days you decide to give up your State Pension, each part of your State Pension will increase by about 1⁄7p per ￡1.00 of the weekly rate payable to you at the time you became entitled to the State Pension. This works out at about an extra 71⁄2% of State Pension for a whole year. Example C over the page illustrates the calculation of increments.

From 6 April 2010

From 6 April 2010, for every six days you decide to give up your State Pension, each part of your State Pension will increase by about 1⁄5p per ￡1.00 of the weekly rate payable to you at the time you became entitled to get the State Pension. This works out at about an extra 10.4% of State Pension for the whole year.

BUT the example given then is for a pension not taken in 1998 but taken in 2003 but is calculated at the 2003 pension.

To me the example contradicts the text.

To make things more concerning and confusing the NP46 document isn't available on the DWP site and when you download it it says:

August 2010

[FONT=Arial,Arial][FONT=Arial,Arial]

NP46 – A detailed guide to state pensions for advisers and others

[/FONT][/FONT]This guide is being reviewed and is not currently available.

So it may be unsafe to take the old versions we have as being definitive.

I'm not certain how to get this answered authoritively .................

hugheskevi

payable to you at the time you became entitled to the State Pension.

There may well be a (pedantic) answer to this, that you are not entitled to the State Pension until you claim it, and as you claim your State Pension to end deferral, the rate at the time you become entitled is the rate at the end of the deferral period.

Not sure that this is the interpretation, but I wouldn't be surprised if it were.

uk1

Thanks - but you are entitled to claim your pension when you reach retirement age but have chosen not to claim it.

It says pretty clearly:

of the weekly rate payable to you at the time you became entitled to the State Pension

.......... pretty clearly - to me at least - the earliest date you can claim.

hugheskevi

but you are entitled to claim your pension when you reach retirement age but have chosen not to claim it.

You are certainly entitled to claim at State Pension age - in fact, you can claim before State Pension age - but if you choose to defer, you defer making that claim, and until you have made the claim, you are not entitled to State Pension.

A good example of the language is at the TPAS language on this page, which explicitely says you "defer claiming the benefit" (italics added by me).

Meanwhile, this Age UK page lists claiming pension as one of the three requirements to get a State Pension.

So I still think that it may well be that you are not eligible until you have claimed, so the key rate of State Pension would the rate of pension in place at the time of the claim at the end of deferral.

uk1

I wish I could get someone in DWP to confirm it as currently both they and the Pensions Advisory Service are adamant that it's frozen!

When I point out that if it were frozen then it defeats the point of deferring they simply agree. I point out that deferres lose out on inflation and they confirm it.

I at least asked them the question and I'm reasonably articulate ... and presuming I'm being misled I don't know where to go to get an accurate reply ... or have the preferred version confirmed.

uk1

Another call to the DWP.

I asked the person I spoke to if he could look at NP64 with me. He asked if NP64 was a postcode. I explained that it was the "pensions bible". He said he'd worked at DWP for several years and never heard of it.

Went through the issue and he says the Pensions Advisory Service and the colleague at DWP who I spoke to yesterday are both wrong .... or at least he thinks they are both wrong .... and it's the amount payable when the pension is actually taken and not the original pension frozen at original entitlement date.

I guess we're at 2:1 now ...................

zygurat789

You are NOT entitled to a pension if you defer it, obviously you can't do both. You are eligible for a pension when you achieve the relevant age. You are only entitled to a pension when you claim it.
Been there, done that and checked the calculation.
Your problems are all semantics.