Deferring your pension - a good idea or not ?

southernbelle852

OK - am coming up to retirement in January 2013. Worked since I was 18 so have way over the 35 years contribution. Female, have been offered "deferred pension" to "boost" my basic pension entitlement but I don't know if [a] this is a good thing or not wouldn't it be better to use current pension entitlement to pay off outstanding debts ?? Annuities seem to be a big "NO" . Also it seems there is going to be a flat rate for everyone come 2016 but apparently if you retire or get to retirement age before then you will NOT be entitled to the newer increased flat rate and I am not sure even if I did decide to defer my basic rate until 2016 I would get anything like the flat rate. Can someone give some helpful advice here please ! Also would like to point out that when I started work we weren't advised to start "saving" !! This idea only came in about 15 years ago when it was far too late so all you people who keep harping on about how "we" should have made provision for our old age can I point out that we weren't given any warning unlike you "young things" !! Thanks.

kidmugsy

southernbelle852 wrote: »

Worked since I was 18 so have way over the 35 years contribution. Female, have been offered "deferred pension" to "boost" my basic pension entitlement but I don't know if [a] this is a good thing or not wouldn't it be better to use current pension entitlement to pay off outstanding debts ??

We are discussing State Retirement Pension, I expect?

Anyway, the terms they offer for the extra pension you get for deferring are excellent, especially for a young woman like you unless you expect to die early. Are you in good nick? Is your family long-lived?

On the other hand, that's only interesting if you can afford to do it, and therefore attention turns to your debts. If they were, say, a mortgage charging a low interest rate, there might be no reason to clear them off in a hurry. On the other hand, if they were expensive credit card debt, you might want shot of them quickly.

A compromise is possible: take the pension for a couple of years, clear the debts, and then "buy" yourself a bigger pension by deferring the pension once your debts have gone. You are allowed to defer once after starting the pension, if I remember rightly.

bigadaj

Deferring after taking it sounds counter intuitive but the first google result I found was a hmrc link on taxing of pensions which seems to confirm it, thanks for that kidmugsy.

atush

I find the OP very confusing. Perhaps mixing a state pension with an Final salary pension (both of which can be deferred) with a DC pension (mentioning an annuity). And paying off debt which can be done with both DC and FS pension lump sums but state pensions don't have them.

Wilkins

atush wrote: »

I find the OP very confusing. Perhaps mixing a state pension with an Final salary pension (both of which can be deferred) with a DC pension (mentioning an annuity). And paying off debt which can be done with both DC and FS pension lump sums but state pensions don't have them.

Yes, I couldn't really make sense of it either.

xylophone

You mean that you reach your state pension retirement age in 2013?

If so see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

"If I defer my state pension until after single tier starts in 2016, will I be
able to claim a single-tier pension?
• No - the date you reach State Pension age determines whether you fall into the single tier or the current state pension system. You will not be able to delay taking your state pension in order to bring yourself within the scope of the single-tier scheme."

If you defer the current rules will apply https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210220/DWP024.pdf

Are you giving up work at SPA? Do you have an occupational pension?

jamesd

First, the state pensions. Assuming you mean that you are reaching state pension age in January 2014 you will be able to defer your state pensions and they will increase by 10.4% for each year of deferral, pro-rated for shorter times. for a woman in normal good health it is bes to defer for between two and five years, with the exact number depending on individual life expectancy. The choice of higher income is better than the choice of a lump sum, the lump sum is not worth deferring for except if you continue working and can get some tax advantage from taking it after you stop working.

Whether it is better to pay off debts and how depends on the nature and interest rates of the debts. It'll often be better to use 0% credit card deals or personal loans than not deferring the state pension. It's usually better to do those things to allow deferring even when it is not otherwise possible.

Because the 10.4% increase is for life and increases with inflation at least, it is usually not worth paying off debts instead. Even a 25% credit cards interest rate only lasts for as long as the debt lasts, while the higher income last for life and that is much longer than most debts end up lasting.

It is possible to claim the state pension for a while, then defer. You can do this deferral after claiming exactly once in your life. If you just don't claim, that doesn't count for this limit, so you can start deferring, claim for a while, then defer a second time.

If you have choices to make about work pensions as well, please say more about those work pensions. In general, it is best not to take any lump sum from final salary pensions or similar defined benefit pensions. It is usually best not to defer them but some do increase the amount paid if you defer so sometimes deferring a work pension could be best. For personal or defined contribution pensions it is usually best to take the maximum possible lump sum. But nothing in this paragraph is about the state pensions, so just ignore it if that is all you're asking about.

Jaycee_Dove

Worth comparing the difference between deferring for two - three years up to the start of the new increased pension in April 2016 and the mooted plan from October 2015 to buy up to £25 pw extra pension to top up the difference between existing SP and the new flat rate.


Via deferment - if you have, say, £120 pw built up then a 2.5 year deferment will bring it up by a tad more than £25 pw. You lose nothing, as such. In fact can take it as a lump sum instead of per week.


To buy the same sum, if the figures from Paul Lewis on Money Box are accurate over the weekend, then you would need possibly up to £25 to £28K.


So deferring is roughly twice as good a deal as that in terms of that type of assessment of costs.

patanne

In my experience taking the increased pension is a good deal and the lump sum is not that good. The increased pension may enable you to continue paying your mortgage, whilst the lump sum may not pay it off in full. Have you got a pension forecast. After all the more you start with the more you will end up with, but that could well depend if you opted out! You can probably tell from the above that deferring was one of the best decisions I have ever made.