Deferred State Pension Calculation

uk1

You are incorrect. If you are eligible then you are entitled. In fact the DWP write to people automatically reminding them to claim the pension that they are entitled to.

The government explains it in RPSM11102050.

What is meant by “entitled” to a pension?

A member with the expectation of receiving pension payments at sometime in the future is said to have a ‘prospective right’ to pension. This pension may be in any of the forms described in RPSM09100320. For the purposes of the legislation, the member only becomes ‘entitled’ to a pension benefit at the point when they first obtain an ‘actual right’ to receive it. This ‘actual right’ has to be distinguished from their ‘prospective right’. An ‘actual right’ is when a member has the right to a benefit without having to fulfil any further conditions.....

I think you'll find that people are entitled to a bus pass when they fulfil the qualifying crirteria ie when they are eligible. People are entitled to a pension when they meet the qualifying criteria. The same with Winter Fuel Allowance. Many people are entitled to it but do not claim it. They are not "unentitled" if they haven't merely claimed.

I have no problem with semantics at all. The problem I have is receiving incorrect advice from PAS and DWP from people who apparantly don't understand the topics that they are providing important advice on.

placido

The benefits accrued from deferring a state pension (whether for the lump sum or pension increase) is calculated (if my memory serves me correctly) on a daily basis.

It is as though you were actually drawing the pension each week but the pension is going into a holding account where it attracts interest; calculated, as I have said, daily.

The pension amount that you defer is eventually either paid back to you as a lump sum (with interest) or else the lump sum to which you would have been entitled is converted into a sort of annuity which increases your weekly pension. Hence you do receive the annual increases in pension and you also get interest on the annual higher pension entitlements.

I don’t think this is a problem with semantics but genuine confusion of how the deferred pension is calculated. It does not help that the people you have spoken to (Pension Service) have given conflicting advice. This is actually par for the course.

The question that has arisen over entitlement is somewhat misleading. Once you are eligible for the retirement pension you can claim it any time you wish. It does, of course take a few weeks before they can work out your entitlement and organize payment.

If you do not claim your retirement pension it is assumed that you are deferring it and you will eventually, when you do claim it, get everything you are owed. This is different from the winter fuel allowance where if you do not claim it you can lose it.

jingleberry

One possible way to get a definitive answer might be for someone who has already deferred their pension to ask for an online quote, and then compare this to any quote received at the time they became entitled to their pension. I have tried this myself but for some reason I keep receiving an error message from the DWP website. It might be that the website is not geared up to provide quotes to anyone who has already dererred.

zygurat789

jingleberry wrote: »

One possible way to get a definitive answer might be for someone who has already deferred their pension to ask for an online quote, and then compare this to any quote received at the time they became entitled to their pension. I have tried this myself but for some reason I keep receiving an error message from the DWP website. It might be that the website is not geared up to provide quotes to anyone who has already dererred.

It works as in #12 above, been there done that.
I think the problem is that the OP is tghinks he has been misinformed by DWP staff. Since we have no recording or transcript it is impossible to resolve this.
What someone says is not necessarily what is heard!

uk1

zygurat789 wrote: »

It works as in #12 above, been there done that.
I think the problem is that the OP is tghinks he has been misinformed by DWP staff. Since we have no recording or transcript it is impossible to resolve this.
What someone says is not necessarily what is heard!

Not certain why you've said this - doesn't help at all.

I copy and pasted the reply from the Pensions Advisory Service in full in #10 (it's quite clear and I don't think I misunderstood that) and the DWP confirmed to me that the PAS version was correct. It seemed so wrong that we spent some time double checking that she and I understood what she was stating. I reminded her that if she were correct that people would be losing their inflation increases and she said "quite right". I also said that if she were correct then most people misunderstood it - and once again she agreed. I'm quite clear as to what the PAS and DWP said to me.

I think your version - which was my original understanding - is correct and the first two people I dealt with were wrong - but the last person was right.

By coincidence - as I replied I just found a written reply from DWP in answer to the very specific question. All they did was ignore the question and send me the booklet.

millie

jingleberry wrote: »

One possible way to get a definitive answer might be for someone who has already deferred their pension to ask for an online quote, and then compare this to any quote received at the time they became entitled to their pension. I have tried this myself but for some reason I keep receiving an error message from the DWP website. It might be that the website is not geared up to provide quotes to anyone who has already dererred.

Whe I tried to do an online quote sometime after I deferred my pension it would not let me do one. I think you can only do it before reaching the age to claim.

uk1

Yippeee ..... I think this nearly confirms it!

Dear Mr uk1

About your recent email

Thank you for your email of 13 December 2010.

I am sorry our email did not give you the information you needed.

As far as I am aware when you defer claiming your State Pension the 1% increase will be calculated at the rate at that time.

jingleberry

There is a Pension service leaflet which covers this in detail.
As a new user I am not allowed to post links, however, if you google 'SPD1 pension' it appears as the first result (it is a pdf). As far as I can see it does not specifically answer the point raised by the OP, but to my mind there are strong indications that normal annual increases in pensions will be taken into account when calculating either the lump sum or the increased pension when eventually claiming. For example, page 14 explains the calculation for someone deferring their pension from April 2008 to Oct 2009. The increase is calculated with reference to the pension payable on the date she claims. Also on page 24, under the heading 'what counts as 'weekly state pension' if I put off claiming state pension?' the leaflet points out that 'increases to state pension for another adult' are specifically not included, (implying, I guess, that increases to state pension for the primary pensioner are included).
Also pages 18 to 20 contain a detailed calculation of how the lump sum is worked out for someone deferring their pension for two years. I think this makes it clear that the lump sum calculation will factor in annual pension increases, so I guess the implication is that the same approach will be used for anyone wishing to take an increased pension rather than a lump sum when eventually claiming.

I am no expert and it may be that I am interpreting this incorrectly.

placido

Good work Jingleberry. The example you have given on page 14 appears to explain it at last. I will quote it here for the benefit of others.

Example
Ann reached 60 on 4 August 2008 and decides to put off claiming her State Pension. She starts claiming it from 1 August 2010. On the date she claims, her weekly State Pension is £100 (before any extra state pension is added).
Anne has put off claiming for 104 weeks which means she is entitled to an extra £20.80 a week on top of her £100. We have worked this out as follows.
£100 divided by 500 - £0.20 (500 is 1% of Ann’s State Pension for every five weeks she put off claiming).
£0.20 x 104 =£20.80
Ann will get a total State Pension of £120.80 a week when she claims.

So, if you defer your pension for five years. The base figure used to calculate your extra pension is the weekly pension payable to you in year five and not the pension you could have drawn in year one.

This means that for each additional year you leave drawing the pension, your base rate will increase annually (taking in to account the annual increases in pension) and hence you do benefit from the increases in annual pension.)

So, in order to make the calculation all the Pension Service need to do is to work out your weekly pension entitlement when you claim it. They then divide this figure by 500 and then multiply it by the no of weeks you have deferred.
Just to clarify it further let us say someone has deferred for five years and their entitlement when they claim is £120 per week.

They would divide this by 500 (to make £0.24) and then multiply by 260 (weeks) making an extra pension of £62.40 and hence a total pension of £182.40

The lump sum calculation is done differently. Everything is added up as though you were drawing the pension and variable interest added according to the current bank of England base rate. The interest is calculated on a weekly basis (and not on a daily basis, as I previously believed.

These examples match exactly the lump sum and extra pension that was offered to me after deferring for over four years. I did not know how they had worked it out until Jingleberry pointed out the example on page 14 and then suddenly the penny dropped.