Deferring a further year and/or Top Up ..etc

kidmugsy

uk1 wrote: »

1. The 10.4% is applied to the pension you would have taken if you had retired "when you should have done" not the current higher one. So if it was £110 then but £120 now it is 10.4% of £110 not £120.

No, no, no. You get the 10.4% on the pension that you would otherwise get at restart. So if there are a few years of "triple lock" on the Basic Pension, and CPI-linking on the Additional Pension, then they are added on, and then the 10.4% is calculated. Good, innit? You can see why it's rotten value for the taxpayer though.

uk1 wrote: »

2. The spouse 50% goes to the surviving spouse even if they are collecting their own state pension in their own right ... and even if theirs had also been increased by deferral. So there are no disqualifiers.

Ooooh no it's better than that. To your spouse goes 100% of the part of your Extra Pension that was due to your Basic Pension, and 50% of the part of your Extra Pension that was due to your Additional Pension. In my case that means that, by my calculation, about 90% of my total Extra Pension will go to my widow. The 90% is so high because I was "contracted out" for much of my career, so my Additional Pension is rather small.

uk1 wrote: »

The total pension when you take it including the deferred bit is all then increased when you start taking it by whatever the current increases are year on year.

Yup.

kidmugsy

SnowMan wrote: »

For a single male (with SPA 65) reaching SPA now, before 6th April 2016, I calculate the optimum period to defer state pension to be about 4 to 5 years based on the assumptions below.

Many thanks. For a married man with a wife of the same age or younger it's an even better deal.

The OP might also be interested in the following point. Sometimes (I have no idea how often) if someone who defers also has a DB pension (e.g. a Final Salary pension) and he notifies his pension scheme, he can end up with a bigger FS pension than he would otherwise get, throughout the period while his State Pension is deferred. Talk about jam on your bread and butter!!

uk1

Hi, I am getting more stupid as I get wiser ....


So the 10.40% per year is applied in my illustration to the current payable pension ie £120.


I'm unclear as to what is Extra Pension and what is Additional Pension. They sort of sound the same to me.


In simply terms if my state pension is £120 when I start and the 10.4% total is an additional say £30 ie £150 in total and I then eat the mushrooms - what would she get of that please?


I was contracted out and have been receiving my db pension since I was 53.

saver861

uk1 wrote: »

Many thanks.

As I get to grips with this I seem to forget the answers to simple questions I had previously understood. I have read the pdf but it confuses me more. So please indulge me a couple of clarifying recaps.

1. The 10.4% is applied to the pension you would have taken if you had retired "when you should have done" not the current higher one. So if it was £110 then but £120 now it is 10.4% of £110 not £120.

You might just be better thinking in 'todays' money. Everything will rise with the current triple lock rate, so for example, £110 today that becomes £120 with inflation rate rise next year is still just about the same buying power.

So, though the amounts increase, the buying power stays the same. The yearly increase is applied to whatever the current pension is at the time of taking it.

(At the moment, triple lock is giving pensions an advantage due to the low inflation rates so the buying power of your pension is increasing a little.) :T

uk1

Thanks - no I'm not in the slightest confused about inflation and buying power and "discounting" rates. I wanted to simply understand whether in the case of my wife for example whether the 10.4% per year is applied to the 2011 pension that was payable if she had retired then at her earliest or whether it would be applied to the pension that is currently payable. I always thought when reading the pdf if was based on increasing the 2011 pension but now it seems I was incorrect.


Thanks anyway for double checking.

saver861

uk1 wrote: »

Thanks - no I'm not in the slightest confused about inflation and buying power and "discounting" rates. I wanted to simply understand whether in the case of my wife for example whether the 10.4% per year is applied to the 2011 pension that was payable if she had retired then at her earliest or whether it would be applied to the pension that is currently payable. I always thought when reading the pdf if was based on increasing the 2011 pension but now it seems I was incorrect.


Thanks anyway for double checking.

No worries - but if I understand your question then the 10.4% will be applied to your wifes pension at todays rates if she were taking it today. If it was £5000 at the time of her retirement date but is £6000 today, i.e. the date she decides to start taking her pension, then the 10.4% will be applied to £6,000.

uk1

Thanks for all the help I've been given.


I guess the only thing I think I do not understand is what exactly does a surviving spouse receive if they have all their own pension including deferral pension.


I'm unclear as to what is Extra Pension and what is Additional Pension. They sort of sound the same to me.


In idiots example would be really great. If it is me that took the poisoned mushrooms and my pension is £120 plus a deferral element of £30 today - what part of that would she get please.


Thanks again.

kidmugsy

The state pension you'd get if you drew it at 65 consists of two bits: Basic Pension and Additional Pension. The latter is the bit that depends both on the size of your earnings over the years, and on whether you were contracted in or out. It has three components: SERPS, S2P and Graduated Retirement Benefit (GRB).

The extra pension you get if you defer is called Extra Pension (previously known as "increments"). It consists of two bits: your extra basic pension (i.e. the 10.4% for each year of deferral that's based on your Basic Pension) and your extra additional pension (i.e. the 10.4% for each year of deferral that's based on your Additional Pension).

All your Extra Pension will get index-linking: at the moment it's linked to CPI. Your Additional Pension gets index-linking too: at the moment it too is linked to CPI. Your Basic Pension gets index-linking: at the moment by the "triple lock" i.e. it gets the greater of (i) CPI inflation rate, (ii) Earnings inflation rate, (iii) 2.5% pa.


From your Extra Pension (i.e. what you called "deferral pension") your widow would inherit (a) your extra basic pension, and (b) 50% of your extra additional pension. In my own case those two add up to 90% of the Extra Pension.

On top of that she would also inherit 50% of your Additional Pension.



For what it's worth, I wouldn't be surprised to see the expensive triple lock replaced by something cheaper e.g. simple CPI-linking.

saver861

uk1 wrote: »

I guess the only thing I think I do not understand is what exactly does a surviving spouse receive if they have all their own pension including deferral pension.

I'm not sure if that is down to specific circumstances to determine the actual amounts...

uk1 wrote: »

I'm unclear as to what is Extra Pension and what is Additional Pension. They sort of sound the same to me.

The Extra State pension is the actual amount it will increase by due to deferral. So by the previous example, at £6,000 with a 10.4% increase the total pension will be £6,624 - the £624 being the 'Extra Pension'

uk1 wrote: »

In idiots example would be really great. If it is me that took the poisoned mushrooms and my pension is £120 plus a deferral element of £30 today - what part of that would she get please.

I don't know the detail on that but if you have not already been there the link to the site is here https://www.gov.uk/deferring-state-pension/tax-and-inheritance giving you details of inheritance. She will be able to claim some or all of the extra pension depending on circumstances. The exact amounts will be down to detail.

uk1

Many Thanks .... I believe I now have it!

In my case it would mean if I were doing it:

What I'd get:
(1) Basic State Pension
(2) Additional Pension - in my case only a miniscule bit of
(2.a) Graduated as I have been contracted pretty much out all of my life.
(3) Extra Pension
(3a) Extra Basic Pension 10.4% of (1) for each year.
(3b) Extra Additional Pension 10.4% of (2a) for each year

Increases
(1) is subject to triple lock increases (3) currently increases by CPI.

Inheritance
Wifey would inherit 100% of (3a) and 50% of (3b) ie the deferred graduated and 50% of (2).

I think I have got it now. Really easy isn't it .....