State pension deferral - worth while??

Telegraph_Sam

Tks. It will take me some time to digest all of that!

kidmugsy

Telegraph_Sam wrote: »

Solution must surely be to arrive (somehow) at a mathematically optimal solution and then modify it

OK: my bit of calculus ignores earnings (or losses) got by saving or investing the pension forgone; we assume uniformity of tax rates during and after deferral, and we deal in inflation-adjusted money. We ignore minor inflation considerations, specifically that your basic pension has the triple-lock, your additional pension gets CPI-linking and your extra pension also gets CPI-linking; I treat these as all being the same (which, as it happens, is true at the moment). Then the "optimal" deferral, beyond which there is no advantage in going, is L/2 - 5 years, where L = remaining lifespan at the moment of deferring the pension. So if a man deferred at 65, expecting to live to 87, he shouldn't defer for more than 6 years. Since he would actually, I suggest, be risking increases in tax rates, amalgamation of tax and national insurance, disadvantageous changes in inflation-linking, and Lord knows what else, I can well believe that a three year deferral is quite enough.

Now consider a woman of 60 who expects, by reason of her own health and her family's longevity, to live to 90; she shouldn't defer for more than ten years.

Of course, this changes to the deferrer's advantage if deferring has let him or her escape paying a higher tax rate on the pension forgone than will be payable on the extra pension that will be "earned".

The size of the "optimal" advantage may interest you; for our woman deferring from 60 and living until 90, she receives a total index-linked pension sum of 40 years' worth, compared to the 30 years' worth she'd have had if she hadn't deferred. Similarly, our man gets a total of 26 years' worth, rather than 22 years' worth.

And for both of them, as someone said above, if they die at an earlier age than their guess, they won't care. If they live longer, they may be grateful that the extra pension runs on and on and on.

Telegraph_Sam

I was on the point of saying that, in a complete reversal of my opening stance, I am fast coming to the conclusion that for this it would be worth the effort of seeking out an IFA who was both 1. interested in and 2. qualified to give me specific advice. However such IFA's seem to be an endangered species in my limited experience.

If I might deduce from your very helpful corresp that you were prepared to earn yourself MSE brownie points by doing this, on a completely non-committal / no liability basis of course, I would gladly provide specifics and assumptions for input, but preferably in "private message" format so as not to clog up the thread with personal details that would be of no interest to other readers.

Any mileage in this?

kidmugsy

Telegraph_Sam wrote: »

I was on the point of saying that, in a complete reversal of my opening stance, I am fast coming to the conclusion that for this it would be worth the effort of seeking out an IFA who was both 1. interested in and 2. qualified to give me specific advice. However such IFA's seem to be an endangered species in my limited experience.

I'm an amateur; I have no desire to sail close to the wind. Good luck with your search for an IFA. How about dunstonh?

jamesd

You could probably benefit more from an actuary than an IFA. Your personal life expectancy is possibly the most significant number that affects the result. Next is your risk tolerance for investing.

System

The more fundamental question, which I was trying to get at, is what do you want to do with your life?
1) Do you WANT to go on working - is it something you enjoy and would be loathe to leave, or can't you wait to retire?
2) How much flexibility do you have in terms of options for partial retirement, part-time working ? Are you in control, or your employer?
3) Do you really want to spend the last years of your life calculating how long you will live, reassessing your chances and choices? Would your life be better enhanced by worrying about it or living it?

janeh52

I don't think anyone has raised this point so far: if you choose to defer your state pension, does that mean losing out on other benefits like winter fuel allowance (while it lasts...) and qualifying for the oldies' bus pass? I reach SPA ( 62 for me) next May and would want to factor this into a decision about whether deferral is in my best interests.

PennyForThem_2

No. If you defer you don't lose any other rights. I still get free bus pass/winter fuel allowance etc.

I work. Deferral is a no brainer for my circumstances.

patanne

You get the WFA & a bus pass dependent only on age not working status. If the timing is right you can even use your bus pass to get to work, how MSE is that?

luvchocolate

I agree with penny for them I reach state retirement in September as I work full time I will defer for approx 3 years to take me to 65 and hopefully with works pension too will be just under tax paying tax.
If I took state pension this year would be paying tax.
Looking forward to bus pass and winter fuel allowance which I just manage to qualify for next winter, will be a big help