Deferring State Pension

jackyann

Mine is due soon (hooray!) but at present I am fine without it (and, yes, I do know how lucky that is!)
My husband is 2 years older than me and we are both in good health.
I am intending to defer, so that I get extra in the future. I just wanted to ask if anyone here had any thoughts about potential pitfalls: the only one I can see is that if we both die before he is State Pension age, the money is lost - very unlikely and not be worried about IMHO.
However, the fine minds on here may have other thoughts, and the views here are always interesting.

kidmugsy

I worry that some day a government will decide that the extra pension you'll get by deferring is a sign that you are a bourgeois capitalist pig and steal it from you. Everyone else here seems to think that I'm taking an unnecessarily pessimistic view. But I can remember the state stealing a good deal of money from my father by retrospective legislation in the mid 70s.

bigfreddiel

say you defer for 2 yrs - that means you have about £12,000 to make up - how long would your increased pension take to do that?

Work that out and then make up your mind

cheers

fj

whitesatin

Oh I'm taking mine in March although I am doing ok without it at the moment. I just recently lost a close friend who was not much older than I am. The only thing we can be sure of is the present and a few extra pounds can be put to good use. I don't mean to sound pessimistic but somes events can act as a leveller. I took my teacher's pension early and have had six years of that. Ok, I could be getting more had I waited but I have no regrets. Live for the moment, I say.

Linton

Taking into account that the average life expectancy for someone retiring at 65 is a bit more than 20 years a simple and very crude calculation suggests that delaying taking the state pension for up to 10 years is on average worthwhile in terms of total income. It is of course more complex than this because of possible tax and benefit implications, the investment return on the income you dont need, inflation etc etc.

Another good reason for delaying taking state pension is inflation. Such a delay provides a very efficient way of converting excess income from a non-inflation linked private or company pension into inflation linked income which could be extremely valuable particularly if you live to a unusually old age or inflation rates soar. So by giving up a year's £6000 income at 65 you gain an extra £600/year inflation linked for the rest of your life. This is much better than the inflation linked annuity rate of just over 3%.

bigfreddiel

Linton wrote: »

Taking into account that the average life expectancy for someone retiring at 65 is a bit more than 20 years a simple and very crude calculation suggests that delaying taking the state pension for up to 10 years is on average worthwhile in terms of total income. It is of course more complex than this because of possible tax and benefit implications, the investment return on the income you dont need, inflation etc etc.

Another good reason for delaying taking state pension is inflation. Such a delay provides a very efficient way of converting excess income from a non-inflation linked private or company pension into inflation linked income which could be extremely valuable particularly if you live to a unusually old age or inflation rates soar. So by giving up a year's £6000 income at 65 you gain an extra £600/year inflation linked for the rest of your life. This is much better than the inflation linked annuity rate of just over 3%.

very nicely put - i deferred a final salary pension for three years - been earning 9% per annum since then.

but here;s an idea, only if you're still working and paying into a pension, take your sp, pay it all into your pension or sipp, and get 20% (or 40%) added by hmg

that should enhance your occupational pension.

cheers

fj

Linton

bigfreddiel wrote: »

very nicely put - i deferred a final salary pension for three years - been earning 9% per annum since then.

but here;s an idea, only if you're still working and paying into a pension, take your sp, pay it all into your pension or sipp, and get 20% (or 40%) added by hmg

that should enhance your occupational pension.

cheers

fj

Yes, but not by as much as delaying taking the state pension. A £6000 gross pension lump sum wont get you £600/year.

McKneff

I took mine at pension age at 60.

My poor old mum, took her pension in the January when she was 60, virtually dropped down dead a further 6 months down the line.

You absolutely never know, it's all up in the air, guesswork and hoping to live longer than you probably will.

jingleberry

Deferring the state pension and taking an increased pension later is like buying an annuity, but with a much better return than you would get in todays annuity market. If you dont need the money, I think it is a no brainer when you consider the interest rate you might get nowadays by taking and then depositing the cash. There is also the option of taking the defered element of the pension as a lump sum rather than an increased income. Last time I looked, interest accrues on the accumulating deferred pension at 2% pa - not much less than is available on deposit accounts (fixed term or otherwise) nowadays. I think that it is probabaly better (from a return on investment point of view) to take the increased income rather than the lump sum, but you dont have to make the decsion until you are ready to stop deferring so if someone deferred their pension and then became aware of a health problem which might shorten their life, they might chose the lump sum option.

jamesd

Your plan to defer seems fine . Using typical cohort live expectancies the optimal deferral period for a man is between one and three years and for a woman between two and five years. Assuming that you plan to take the higher income, the choice tat tends to end up providing the greatest benefit. The expected gain starts to level off around the middle of those ranges, benefiting mostly those who end up living longer than average. About 50% of 65 year old women can expect to live to 88 or older, a year and a half or so less for men. That's assuming average health.

If you did desk jobs or other low stress work and are both in good health your chances of exceeding the average are good. Those who have those factors have higher job and health-related life expectancies.

If you do try to work out the break even point, do remember to allow for the increases in payout each year and not just use the initial value. Just two percent increase a year increases the payment amount by 48% after twenty years.

Deferring has a major advantage for women compared to men. Women often have partial reliance on a spouse's income and that may drop substantially or vanish when the spouse dies. The increased state pension for the woman can be an inexpensive way to get additional guaranteed income for that situation.

OurKev

I think it depends on how much money you have and what you want to do with it.....

To some of us having an extra £5K a year while fit, healthy and able to treat ourselves/family and friends would be wonderful, much better than getting extra money when unable to really benefit from it.

For others, comfortable as they are already, the financial benefits of deferring are compelling.

Each to their own.

OP - sounds like you are in a fortunate position whatever feels best for you.