State pension deferral question

uk1

I'm hoping someone can answer something that has puzzled me about the state pension deferral calculation.

The only two pieces of information I can find are two facts.

1. That every 5 week delay will give an extra 1% of pension.

2. That this is equal to 10.4% annual increase.

But I can't see how those figures work. Presuming that the increase is cumulative and also assuming that they only increase in 5 week increments then the annual increase to me seems over 11%. If the increase is calculated on a daily or weekly basis so that every day or week delayed adds to the increase then this would be even higher.

Have I misunderstood something as the deferment seems more generous than stated.

Mojisola

https://www.moneysavingexpert.com/savings/state-pensions

There's a chart down near the bottom of the page that explains the impact of deferring.

uk1

Thanks - I understand the impact of deferring hence my question. Hopefully someone will understand the specific question I was asking about the actual calculation and percentages and answer my question.

Thanks.

SeekTruth

uk1 wrote: »

I'm hoping someone can answer something that has puzzled me about the state pension deferral calculation.

The only two pieces of information I can find are two facts.

1. That every 5 week delay will give an extra 1% of pension.

2. That this is equal to 10.4% annual increase.

But I can't see how those figures work. Presuming that the increase is cumulative and also assuming that they only increase in 5 week increments then the annual increase to me seems over 11%. If the increase is calculated on a daily or weekly basis so that every day or week delayed adds to the increase then this would be even higher.

Have I misunderstood something as the deferment seems more generous than stated.

You must defer by a whole number of weeks, and for each week you get 0.2% increase. You must defer by at least 5 weeks. There is no compounding of the increase.

So, for example, you could defer by 6 weeks and get 1.2% (= 6 x 0.2%) increase. You could defer by 600 weeks and get 120% increase.

The commonly stated increase of 10.4% per year's delay is actually for 52 weeks.

A further point. The increase (once in payment) is uprated annually in line with prices (CPI) and not by the 'triple-lock' mechanism of the basic pension.

kidmugsy

uk1 wrote: »

Presuming that the increase is cumulative ...

That's the error: you're treating it as if it were compound interest but it's set up to be like simple interest.

bigfreddiel

it's just too simple

5 weeks = 1%

1yr = 52 weeks 52 divide b 5 = 10.4 i.e. 10.4%

i think a child could have worked out 52/5!!!!

glad to help

fj

Jennifer_Jane

And be careful. You lose the pension you would have had in the hope of increased gain over time.

For me, I deferred for two years, because I didn't have all my years' contributions. That meant I 'lost' over £8,000, and there was one year when the Extra pension, as it's called, wasn't increased at all despite promises from the DWP that it would be treated the same as the Basic State Pension.

My "breakeven" point will be some time well into in my 70's.

kidmugsy

Jennifer_Jane wrote: »

And be careful. You lose the pension you would have had in the hope of increased gain over time.

Well of course you ruddy do - that's the point of the deal: you forgo money now to get more later.

Jennifer_Jane wrote: »

My "breakeven" point will be some time well into in my 70's.

Anyone's breakeven point for each year deferred will be just under 10 years from the year of deferral, unless tax considerations complicate the picture. That's because 1/10.4% = 9.6.

uk1

SeekTruth wrote: »

A further point. The increase (once in payment) is uprated annually in line with prices (CPI) and not by the 'triple-lock' mechanism of the basic pension.

Many thanks.

To clarify. Are you saying that two different rates of increase apply to a deferred pension. The deferred component is increased by CPI and the base amount by the triple lock?

And just to make sure I don't further misunderstand .... is say the 20.8% after say two years increased on the original pension amount 2 years ago or on the new current increased pension at the point it is actually taken?

Thanks again.

comeandgo

You can off course take it as a lump sum and it will be taxed at whatever rate of income tax you are on at the time you receive it. We did that as we did not want husband to be in 40% tax bracket, delayed this penion by three years. I know some people will be horified that we took the lump sum as its not really very good planning but decided its better to take it now rather than hope to live to "breakeven point".

Jennifer_Jane

kidmugsy wrote: »

Well of course you ruddy do - that's the point of the deal: you forgo money now to get more later.




Anyone's breakeven point for each year deferred will be just under 10 years from the year of deferral, unless tax considerations complicate the picture. That's because 1/10.4% = 9.6.

Well, aren't you the little charmer?

I posted because I thought the OP seemed to be having some difficulty with doing the arithmetic.

How very unpleasant your post is.