Have I given Mum the right advice re state pension!

antsean

Hi All!

My mum is going to be 60 in May of this year and her and my Dad (who isnt 60 until December) have their own business which they thoroughly enjoy working at-hence, she has no intention of giving up working yet.
Unfortunately my dad cannot read very well so she has asked me whether I think she should either delay taking her state pension, as they are quite comfortable financially, and getting a lump sum at a later date. Or take her pension, allow it to be paid first into an ISA until it reaches the £3000 limit, and then the rest into a regular savings account with the best rate of interest.
I have told her that I think the latter is the best idea as she would have more control over the money and where it is put. It would also mean that, should they ever need access to the funds it would be relatively easier to do so.
So far she hasnt told the Pension service her decision so I thought I would ask you lovely people on here for any advice/suggestions!:D

Many Thanks!

Ant

GillyFlower

I have posted several times and each time I have had no real advice.

So my latest is under the heading - 'Deferring State Pensions - does it pay more interest than an ISA.' I am trying different headings in the hope it attracts someone who has some thoughts to share.

I am one stage further than your Mum and will no longer be on the payroll of the Family Business any day now. I do not have a Company Pension - but - my question is in a way similar to yours I think. Basically at the end of the day where will our money attract the best interest.

Good Luck and I will watch your Topic in case you strike lucky.

exil

Try this

http://www.ageconcern.org.uk/AgeConcern/is12.asp

You seem to be comparing, in effect, 2 ways of deferring a pension - (a) by taking the pension and investing it (b) by letting the pension service "invest" it for you.

The interest rate for (b) is 2% above base rate - that is, 7%. This is rather better than any savings account I know of. On the other hand it's taxable, so for a 22% taxpayer it would be about 5.5% net, less than some cash ISAs.

However - it would seem the best thing to do by far is neither of those things - defer the pension and take an increased weekly pension. This is best if you expect to live 10 years after retirement - and since at age 60 on average you should live at least 25 years......

jamesd

Looking at annuity rates today for a woman aged 65, it appears that she would need to earn an investment return of about 17% a year to be able to buy an annuity which delivers the same return as deferring the pension and then taking the extra pension money. It seems unlikely that she will obtain this level of return, so it seems unlikely that she will benefit from taking the pension now and investing the money, then buying an annuity later.

(basis: 50 a week deferred for 5 years gives 1352 more state pension according to the Age Concern document. To buy a level single life level annuity delivering that would cost about 20,500 using the 6612 per 100,000 table from sharingpensions. To achieve that needs 17% growth. Note that the state pension is an escalating one of more value. Note that I have assumed that the Age Concern pension amounts are valid for women - they may be for men only!)

Deferring then taking the extra pension rather than the lump sum looks like a better choice of those two options. She would need to live something over 13 years beyond 65 to be ahead compared to taking the pension now. This seems quite likely.

However, her husband won't benefit from the pension if she does die earlier and that may make it more interesting to take the lump sum and invest it. But not in a cash ISA - it really needs to be in a stocks and shares ISA to make sense to take it now.

Deferring and taking it later, living on joint income or husband's pension is also a way of effectively switching some of his pension to her and that benefits her after his death, assuming that he dies first. It's pretty common for women to be significantly worse off in this situation so it's an interesting way to improve her position after his death.

Taking it now and saving it in a cash ISA looks like a poor deal compared to the other options.

Based on those numbers, deferring then taking the extra pension looks likely to be the best choice unless there are health reasons to believe that she will live a shorter life than normal.