State pension deferral - worth while??

Telegraph_Sam

It is becoming less "unusual" for people to work beyond the official retirement age, so we are told, and the state pension system rewards you if you defer starting to take the pension. Despite this I have found it all but impossible to find a source of advice on whether it is in the interests of the beneficiary to do so - if on balance the income sacrifice is compensated by the enhanced income later. Granted that there is no "one size fits all" answer, I don't see why given a few key assumptions (tax rate, future inflation, life expectancy) it should not be possible with the aid of a spreadsheet and savvy with the system to do better than go by gut feel.
The Pension Advisory Service, when I asked, was totally overwhelmed by my request for advice. I got a letter published in Which? on the topic but without any conclusive advice. Some IFA's I spoke to could only give general comments. The one exception said that he would have to undertake specific research to come up with recommendations and, surprise, this would not come cheap!
The decision is one that confronts us all even if at present the majority opt by default to take the pension at 65. Is there no at least first line source of advice available that goes beyond repeating just the general state pension (deferral) provisions???

JohnB47

Telegraph_Sam wrote: »

It is becoming less "unusual" for people to work beyond the official retirement age, so we are told, and the state pension system rewards you if you defer starting to take the pension. Despite this I have found it all but impossible to find a source of advice on whether it is in the interests of the beneficiary to do so - if on balance the income sacrifice is compensated by the enhanced income later. Granted that there is no "one size fits all" answer, I don't see why given a few key assumptions (tax rate, future inflation, life expectancy) it should not be possible with the aid of a spreadsheet and savvy with the system to do better than go by gut feel.
The Pension Advisory Service, when I asked, was totally overwhelmed by my request for advice. I got a letter published in Which? on the topic but without any conclusive advice. Some IFA's I spoke to could only give general comments. The one exception said that he would have to undertake specific research to come up with recommendations and, surprise, this would not come cheap!
The decision is one that confronts us all even if at present the majority opt by default to take the pension at 65. Is there no at least first line source of advice available that goes beyond repeating just the general state pension (deferral) provisions???

Experts will be along shortly but they'll need to know your age. The reward for deferring will be reduced, it seems, for those reaching state retirement age after April 2016.

Telegraph_Sam

If you mean MSE experts ... I will indeed be keen for them to appear.

Age alongside assumed life expectancy is one of the other key input variables which I and others would expect to be asked as a part of conducting the detailed number crunching analysis. In my case I am 3 years past SRA but I suppose that the results will vary depending on when and at what age one puts the question.

xylophone

http://www.seniorsdiscounts.co.uk/articles/the-pros-and-cons-of-deferring-your-state-pension
You have looked at this? General comments but sums up the pros and cons?

Linton

Assuming you are male, are 65 now, and live to the age by which 50% of people currently of your age are expected to have died, which is around 87, then your total cumulative SP income at death reaches its highest point if you defer for 7 years.

At your death at 87 your cumulative income is roughly 20% higher than it would have been had you taken the SP at 65. Your annual pension would be just over 70% higher uprated for inflation.

This is based on simple assumptions. If the extra pension moves you into a higher tax band or if you are receiving benefits things get a lot more complicated.

As you are 68 I would guess the optimum age to take the SP would be much the same, ie 72.

PS another complication is that by deferring you presumably would have to find the missing income from elsewhere using money which you could otherwise have saved earning interest. This would reduce the optimum age for deferral, to what extent depends on the return you could get.

Telegraph_Sam

This is truly amazing! I have been asking this question for well over 3 years and until midday today had only fudge in response!

Your assumptions are correct including basic rate tax before and after. The question of the opportunity cost of the sacrificed income does of course make the decision more complex by an order of magnitude, but in present circumstances I would use the rate for easy access cash, if not zero then max 2%. If your system wants to use discounted cash flow so be it, otherwise I'll be happy with a simple answer!

PS if nothing else you have saved me a bomb from consulting the IFA regardless of how you account for that in the DCF calculations!

Tks

sleines

Although they cannot tell you on best option for yourself you should give the Pension Service a ring as they can tell you how much your state pension would be if you deferred for X amount of years. I used to work for The Pension Service and would be asked this pretty much daily and I always wanted to tell people to claim it and put in savings account, interest may not be amazing in savings account but at least if you claim your pension its yours. If you do decide to defer my personal opinion would be to opt for lump sum than weekly increments as can take years to recoup deferred amount.
Hope this helps.

Linton

Telegraph_Sam wrote: »

This is truly amazing! I have been asking this question for well over 3 years and until midday today had only fudge in response!

Your assumptions are correct including basic rate tax before and after. The question of the opportunity cost of the sacrificed income does of course make the decision more complex by an order of magnitude, but in present circumstances I would use the rate for easy access cash, if not zero then max 2%. If your system wants to use discounted cash flow so be it, otherwise I'll be happy with a simple answer!

PS if nothing else you have saved me a bomb from consulting the IFA regardless of how you account for that in the DCF calculations!

Tks

It reduces the optimum deferral to 71. I just deducted the cumulated interest on the unpaid SP up to the time of taking the SP.

Telegraph_Sam

sleines wrote: »

Although they cannot tell you on best option for yourself you should give the Pension Service a ring as they can tell you how much your state pension would be if you deferred for X amount of years. I used to work for The Pension Service and would be asked this pretty much daily and I always wanted to tell people to claim it and put in savings account, interest may not be amazing in savings account but at least if you claim your pension its yours. If you do decide to defer my personal opinion would be to opt for lump sum than weekly increments as can take years to recoup deferred amount.
Hope this helps.

Thanks. May be I was just unlucky with my various calls to the Pension Advisory Service but I always found it difficult to get from the people I spoke to anything that could be termed "advice". I'll note your own advice re lump sum vs. increments. This is where it gets really complicated, and it may turn out to be an illusion to calculate the real "optimum" in advance and more practical to settle for something that more or less hits the target. Better than tossing a coin ..

Bazzh

I have deferred my state pension for 195 weeks. I will take the higher weekly pension which is £54.00 or on top of my £138.00 basic. The pension I have given up approx. £25000.00 before tax, will give me an index linked £2800.00 per annum, which I think is good value, providing I stay healthy.

patanne

If I understand you correctly, you have already deferred your state pension for 3 years. If so, this means that for every £100 you were getting a week you will now get £131.20 per week (I've ignored the normal increases which have been around 2.5%.

When I worked it out for myself I only had to survive for seven years to get all 5 years worth back, but this will to some extent depend on your circumstances. I do also know that I would never have considered taking the lump sum. But all this, as I said, does depend on your own circumstances.