To defer or not to defer?

zudecke

Hi guys,

My mum just received a letter in the post saying she can cash in her pension now, or defer it for another 2 years.

She is 62 and working 5 days a week still (although she's thinking of cutting down to 4 days a week soon).

What info is needed on her part to help advise?..

Thanks in advance MSE!

Z

jem16

zudecke wrote: »

Hi guys,

My mum just received a letter in the post saying she can cash in her pension now, or defer it for another 2 years.

She is 62 and working 5 days a week still (although she's thinking of cutting down to 4 days a week soon).

What info is needed on her part to help advise?..

Thanks in advance MSE!

Z

What kind of pension is it? Will it increase if deferred?

xylophone

cash in her pension now

???

Are you referring to an occupational pension from her current employer?

A deferred pension from an old employer?

If so, what kind of pension (Final Salary/Defined Benefit/ Defined Contribution etc)?

When does she expect to draw her state pension ( or is she already drawing it)?

What is her tax position?

zudecke

It's a state pension guys..

Her tax position is.. Normal.. I. E. She has no significant savings and earns and has earned between 17-20k per year.

Her current workplace offers no pension.

She has no other pensions due other than state pension.

She spoke to government advisor. He said she'd be entitled to £139 per week.

However a friend of hers has said that she's eligible to only £53per week...

Does this paint the situation?

Cheers in advance guys!

Z

greenglide

So she has reached SPA? Varies depending on her date of birth.

So did she speak to DWP Pensions Service? They would get the amount right. Her "friend" couldn't possibly know how much she would get.

She does, indeed, have the option to defer her ST for as long or a short period she wants. This is worth over 10% per year (pro rated not necessarily complete weeks) which sounds ideal from the details you have given.

bigadaj

So it sounds like she has deferred the state pension and is now looking at extending that.

Deferring teh pension is one of teh best deals around, 10.4% return, so if she can afford to defer its a good deal things may chnage with the new pension environment in two years.

Sounds as though she needs to clarify exactly what pension she is entitled to as well, as the difference between teh two numbers quoted is significant.

zudecke

Thanks so much for the response.

So if she defers it, she'd be eligible for around 10 percent more?

The DHP brochure says
2 percent above boe base rate..

She can't work out if she should take it out now or defer it a year...

atush

if she is still working, has no savings or other pension, deferring her state pension is a Great idea as it will be raised by 10% for each year she defers it, so her 139 would be worth 153 (plus the annual raise quid per week after one year deferral and 167 ish a week after 2 years (plus the annual raise) .

So very worth doing while she is still working. She can pay into a personal pension for a few years to boost her savings as each 100 into a pension will only cost her 80.

zudecke

That is so helpful thank you.

Could you explain the raise quid per week.

Do you guys also consider tax? It's almost giving with one hand and taking with the other....

Jaycee_Dove

As an example, I reached pension age a year ago. Like your mum I have no other pensions just this one. So I had to decide whether to defer because - having been mostly self employed - I would miss out on around £25 pw extra I would have got via the new flat rate pension in 2016. That £155 pw estimated would go to self employed as it would to the employed, but under the current system self employed get less as their NIC stamps were less expensive.


So I saw deferring as a way to bridge this gap because it is a far better deal than any savings account in the current climate.


I was entitled to £123 per week - as I discovered by asking the pension service. I chose to defer and did not have to decide then whether I wanted to take it all as a lump sum or extra per week every week on my pension. You can do either and decide afterwards - when you tell them you want to stop deferring (though you need to defer for at least a year for you to get this choice).


After deferring a year I asked for an estimate of my current position and in those 12 months I had earned well over £6000 if I took it as a lump sum or £138 per week if as extra weekly pension. This was the 10.4 % of my pension plus the rises in the amount everyone gets over the past year.


I am continuing to defer for at least another year, by which point I should be entitled to either around £13,000 or more as a lump sum or about the £155 I would have got out of the new flat rate every week.


The tax implications you can only decide on earnings at the time (ie your mum would be advised to keep on deferring whilst she is earning, or, at least, until she builds up her pension to an annual level above that for which she would be taxed). The pension plus all other earnings need to top around £10,000 in a year before she would pay tax.


So, if she is earning enough to live on from work, then defer until she retires from work, take the enhanced pension and only pay tax on the bit over £10,000 or whatever the sum will be by then.


There are a few other implications - eg on any benefits you might claim. But the bottom line is IF you are in good health and expect to still be around in, say, 10 years, and IF can afford to live without the pension for a year or two then DO defer as it is a terrific deal adding to your eventual income in a much better way than pretty well any savings option out there.


It is almost twice as good as the new plan to let people buy extra weekly pension by paying a cash sum to the government as a top up. And will almost certainly be a similar amount better than the rate for deferral will be under the new flat rate pension.


The government seem aware this is a great way to boost your pension - which is probably why if you can get it then you should consider grabbing it before they shut the door.

zudecke

Hi,

Just wanted to respond and thank you all for the helpful posts!

She has decided to defer based on the sound advice given and fact that she's still in full-time employment .

Thanks again all!

Z