state pension..defer?

luvchocolate

Hi I read on another thread it takes 10 years for each year you defer to benefit.

I am 62 and would get state pension in September, I am female work full time with a works pension estimated at 65 {chosen age to retire}
of approx £85,000. my plan was to defer for 3 years then take state pension and works pension at 65...this would give me approx £1100 per month and my outgoings are now £1000 per month.
now I am not sure thats the right thing to do...i was thinking to defer was better than paying tax on it while still working.
I know none of us know how long we will live, but going on parents/grandparents etc I was hoping early 80's.
I was planning on seeing an I.F.A before drawing works pension.

any advice would be appreciated

kidmugsy

luvchocolate wrote: »

I am 62 and would get state pension in September, I am female work full time with a works pension estimated at 65 {chosen age to retire} of approx £85,000. ... my plan was to defer for 3 years then take state pension and works pension at 65...this would give me approx £1100 per month and my outgoings are now £1000 per month.
now I am not sure thats the right thing to do...i was thinking to defer was better than paying tax on it while still working.

My advice is that your scheme is a good idea: the extra 10.4% of state pension that you'll get for each year of deferral is excellent value: the tax saving on top makes it wonderful. The risk is a political one; can we trust politicians not to take away the advantage in future? I don't know, but the rewards are so great that we decided to do what you intend. Fingers crossed.

jamesd

Your original plan is a good one and I suggest that you continue with it. Do check that the deferral rate continues to be 10.4% for each year once a year because it's possible that this will change when the flat rate state pension is introduced, even though your own pension won't be directly affected by that.

Assuming that you don't smoke and are otherwise in normal good health you can reasonably expect to live to the high 80s or early 90s.

patanne

If you are intending to continue to work then I think it would be a good idea to defer your state pension. I did (so I can declare an interest here) and it has changed a "tight" retirement (car would be a stretch) to business as usual. Well actually I deferred for 5 years and it is now business is better than usual. To such an extent that I haven't started my personal pension. I'm trying to hold on until half of it is enough to pay my tax bill! Seriously if it stays at 10.4% great. But even at 5.2% it would be hard to beat. Remember that as you are still working it will all be taxed @ 20%.

I was supposed to retire at 65 but actually worked until 66.5 and started taking my SP at 65 & so used it to up my savings. I'm still not sure how good that decision was but in the circumstances is not something that I lie awake worrying about.

I do think however that I would have still deferred (being healthy at the time) even if my life expectancy had been lower say only 75. This is because it is about lifestyle and how you want to live those last 5,10,15,20 years. I think you get the drift!

Teaandscones

luvchocolate wrote: »

Hi I read on another thread it takes 10 years for each year you defer to benefit.

I am 62 and would get state pension in September, I am female work full time with a works pension estimated at 65 {chosen age to retire}
of approx £85,000. my plan was to defer for 3 years then take state pension and works pension at 65...this would give me approx £1100 per month and my outgoings are now £1000 per month.
now I am not sure thats the right thing to do...i was thinking to defer was better than paying tax on it while still working.
I know none of us know how long we will live, but going on parents/grandparents etc I was hoping early 80's.
I was planning on seeing an I.F.A before drawing works pension.

any advice would be appreciated

your plan seems a good one.You can't get 10.4% return anywhere else without significant risk. You are probably underestimating your LE as my pension fund assumes that a 65 year old woman will live on average to 89. If you are in good health with a family history of longevity then you could expect to live longer. Most people don't take account of how long they will probably live.

jamesd

It isn't ten years per year of deferral to benefit. It's more like ten years to benefit, however many years you defer. That's not quite true either but it's closer.

If you defer one year you get 10.4% more so after ten years you'll have received 10 x 10.4 = 104% plus the inflation linking minus whatever you could have got by saving or investing the money for the year you waited.

If you defer another year you get another 10.4% more so it takes the same time to make up for that. But you now have to wait one extra year to get the higher income from the first year, so the investing or whatever you'd have done with that money instead would have a bit more time to increase the time it takes to break even. This does add up but it's not anything close to being ten years extra per year of deferral.

There's a high chance of a woman being better off after three to five years of deferring. That is, relatively few will die before being better off. Once it gets to longer than five years the chance of being better off starts to decrease relatively rapidly but seven or even eight years can still make sense for those with good life expectancy or those who want to provide a guaranteed income if they live a long life.

patanne

Have you had a state pension forecast? I only ask because you seem to be assuming only basic state pension.

luvchocolate

Yes I had a forecast..each year actually lol. not sure why you think I expect a basic pension I am due I think £130 per week, and I checked the link on another thread to see what that would be after 3 years so feel I have researched as well as my limited understanding will allow.

Thank you all for your replies and advice very much appreciated