Deferred pension

Civrasien

I've deferred my pension for two years and will start receiving it in June 2014. I have a choice to either take a lump sum, which will be taxed, or add an extra 20 pounds per week to my weekly pension.
Can someone guide me to the best way to go?

xylophone

http://www.hmrc.gov.uk/pensioners/pension-later.htm
Have you read this?

kidmugsy

Civrasien wrote: »

I've deferred my pension for two years and will start receiving it in June 2014. I have a choice to either take a lump sum, which will be taxed, or add an extra 20 pounds per week to my weekly pension.
Can someone guide me to the best way to go?

It's the State Retirement Pension, I assume. The reward for deferring your pension is an extra 10.4% on the pension for every year you've deferred it. You'll have got back the money forgone in about ten years after restarting: after that you are in profit. If you are in good health and from a long-lived family, this is a tempting offer. 10.4%, index-linked, is much higher than any commercial seller of annuities can afford to offer. In fact it's too expensive for the taxpayer to offer, which is why it will probably be halved when the new state pension system is introduced. Buy now while stocks last!

On the other hand, you have to trust that politicians really will deliver on that promise to pay you the extra pension to the grave (and the grave of a surviving spouse). My wife took the extra pension. Mine is deferred at the moment and I'm tempted to take the lump sum in due course - that way we are hedging our bets on the trustworthiness of politicians. But my wife's family is very long-lived, so perhaps I'll take the extra pension and let her inherit it (or rather 91% of it, if my understanding is correct).

It's possible that your tax position, your health, your need for a lump sum..… will outweigh these generalisations.

In some ways it boils down to two points. (i) You will know the size of the lump sum when it is offered, and you will certainly get those pounds in your pocket if you ask for them. (ii) Fear not, the Extra Pension is offered on good terms; it is not some measly government swindle. As long as future governments do actually pay up.