Delaying State Pension

fair_enough

My father is 63 and is receiving an RAF pension and has also a part time job which mean my parents live quite comfortably. They have no mortgage so main outgoings are food, household bills, holidays etc. and I know he still puts some money aside each month in savings and P.Bonds (dreaming of that big win).From reading threads on here am I correct in my understanding he could delay taking his state pension and receive a little more each year when he does take it. My thinking is he will continue in the job for a quite a few more years (if he can) as he loves it and they are living well currently. My concern would be that he would need to pay more tax with the extra amount each month thus erroding into their income.Some general views before we sort out an IFA. Thanks.

jamesd

Yes, he can delay and get more. For someone in good health the optimal delay is from [STRIKE]three to five[/STRIKE] 1-3 years for a man, 2-5 for a woman. Going beyond that makes it less likely that higher payments over the remainder of life will exceed the amount not paid during the delay. The increase is a bit over 10% a year.

The higher income is taxable. There's no need for an IFA to do this, though if there are other financial things that need an IFA one can be useful.

SeniorSam

A very sensible idea in the circumstances you state. I did just that and delayed my State pension for 3 years, but was assured that the increase to be paid after age 65 would be paid to my wife as a lump sum were I to die in the interim period. The fact that my pension increased by about 10.2% each year was a great boost and if I had needed to start my pension sooner, I only had to ask. Your father will have the option when he reaches State retirement age.

Good luck

Sam

Loughton_Monkey

Assuming he is a taxpayer anyway, the only tax implications would be if, by delaying the pension, he moves into higger rate tax or - before that - exceeds the income at which his age allowance is clawed back.

fair_enough

Thanks all. There are certainly options from the sounds of it and as you say SeniorSam he can always change his mind if another X years of work no longer appeals. I also understand your point Loughton Monkey and will need to get him to work that out (RAF pension, state pension and job may take him into higher tax bracket). I also get there is plenty of time (couple of years) but want to encourage him to look into it at his own.

property.advert

If he doesn't need the pension to live on, as it appears, then the calculation is not as simple as you need to factor in the accumulation of pension and the corresponding growth were he to take it at the earliest opportunity. If he took the pension then he could invest it in ISAs etc. which would grow tax free and also provide a lump sum if needed. If you need the money to live on then the arithmetic is simpler.

My gut feeling is to get the statutory pension ASAP and invest it if you do not need to spend it. You never know what is around the corner. Sneaking over the "winning line" in terms of delayed pension at a higher rate outstripping the regular pension over time is hardly worth it at the very end of one's life, which is where the original calculation falls down. Having money at a time when you can benefit from its use must carry a premium.

jamesd

That's one way of looking it but for the basic state pension there's one that I prefer: it's currently inflation-protected income that will continue even over a long life. That makes buying more of it by delaying a useful bit of protection. The higher state pension income means that you don't need as much of the other money around and it's more costly to buy this income with that money than by deferring.

Whether this will continue is unknown but at least governments here have been making the difficult decisions that give it a chance.

property.advert

jamesd wrote: »

That's one way of looking it but for the basic state pension there's one that I prefer: it's currently inflation-protected income that will continue even over a long life. That makes buying more of it by delaying a useful bit of protection. The higher state pension income means that you don't need as much of the other money around and it's more costly to buy this income with that money than by deferring.

Whether this will continue is unknown but at least governments here have been making the difficult decisions that give it a chance.

Good point at the margin where you are effectively looking to buy an annuity as like you say, you cannot achieve the rates inherent in deferment.