Deferred Pension "Hot Spot"?

uk1

It strikes me that there is a "hot spot" for choosing a deferred pension start date and that is just after 6th April in any year.

In my wifes case for taking it the week before she would get an extra £66.32 per week but because it would be based on the increased state pension the week after, she would get the higher amount and an extra week making it around £68.38.

Is this rationale correct?

Jeff

mgdavid

the formula for deferred SP increase is 1% for every 5 weeks of deferment, so 'the extra week' doesn't count unless there's a spare 4 weeks to go with it. You have to go back to eligibility date and count blocks of 5 from there.

LXdaddy

uk1 wrote: »

It strikes me that there is a "hot spot" for choosing a deferred pension start date and that is just after 6th April in any year.

In my wifes case for taking it the week before she would get an extra £66.32 per week but because it would be based on the increased state pension the week after, she would get the higher amount and an extra week making it around £68.38.

Is this rationale correct?

Jeff

In general the Extra State Pension is increased in the same way as the Basic state pension - but the wording in the documents leaves a little wiggle room.


So the act that the Base amount is due to increase "next week" shouldn't influence - because the Extra will also be increased.

uk1

mgdavid wrote: »

the formula for deferred SP increase is 1% for every 5 weeks of deferment, so 'the extra week' doesn't count unless there's a spare 4 weeks to go with it. You have to go back to eligibility date and count blocks of 5 from there.

It is calculated on a weekly basis for the 10.4% rate not a five weekly basis.

uk1

LXdaddy wrote: »

In general the Extra State Pension is increased in the same way as the Basic state pension - but the wording in the documents leaves a little wiggle room.


So the act that the Base amount is due to increase "next week" shouldn't influence - because the Extra will also be increased.

I was just making the point that waiting until April 6th means that the increase is applied to a higher amount. Therefore waiting if you can is good. That is all.

Jeff

greenglide

So there could be an advantage?

If you wait until after the uprating the basic pension will be increased by the triple lock which may be more than CPI. Any AP will be increased by CPI, the increments earned will be based on the increased amount?

Just before the uprating the increments are awarded (ignoring that the deferring period is slightly less) and are uprated by CPI afterwards.

So you get a very small increase in the increments as the basic is greater in the latter case?

Does it make a difference? Probably not as the extra deferment period is worth more?

uk1

greenglide wrote: »

So there could be an advantage?

If you wait until after the uprating the basic pension will be increased by the triple lock which may be more than CPI. Any AP will be increased by CPI, the increments earned will be based on the increased amount?

Just before the uprating the increments are awarded (ignoring that the deferring period is slightly less) and are uprated by CPI afterwards.

So you get a very small increase in the increments as the basic is greater in the latter case?

Does it make a difference? Probably not as the extra deferment period is worth more?

You only get the CPI increases of AP once you take it. It isn't backdated.

In the illustration I gave for my wife, the extra was around £2 per week for the rest of her life increased annualy by CPI as against a few pence per week if she had taken it any of the 52 weeks before. You seem to think this inconsequential. If I am correct then taking it into consideration seems worthwhile.

My simple point was that taking the AP the week after the basic pension has been increased by the triple lock seems to be a hot spot, but you seem to disagree, but I do not understand having reread your post several times why you say so.

Jeff

greenglide

Not at all. I "think" that there will be a small advantage as the triple lock has increased the basic and therefore increasing the amount on which increments are awarded. However if the deferring period is longer the extra increments for this will be much more beneficial, won't it?

uk1

Yea, but only until the next triple lock increase a full year later. No?

My original point which you seem to disagree with is that on fixing a date in your chosen year in which you decide to take your deferred pension it seems to be a "hot spot" to take it shortly after it has been increased by the triple lock. That is true isn't it?

Jeff

greenglide

Yes, there may be a "better" date but, because it is later, it is always going to be better because of the additional increments as well. Two "betters" are obviously better than one!

Yea, but only until the next triple lock increase a full year later. No?

No, I dont think so? The next uprating will only uprating the basic amount (or the nSP amount for nSP) by the triple lock, the increments will always just get CPI so the uprating is "better" while you are deferring than it is when you are in receipt of the pension, but not by much.

LXdaddy

uk1 wrote: »

My simple point was that taking the AP the week after the basic pension has been increased by the triple lock seems to be a hot spot, but you seem to disagree, but I do not understand having reread your post several times why you say so.

Jeff

I think there IS an advantage in deferring until just after the revaluation of the basic pension.


Using the normal retirement prior to April 2016 figures - ie 1% per 5 weeks...


If you take a choice of ending the deferral on one date versus one week later there is a difference in the Extra pension of 0.2%


if between those two weeks fall either side of the updating of basic pension then
someone who picks the earlier date will get extra pension of...
old State Pension * number of weeks * 0.2% for that week then one week later will have the extra pension increased by CPI%


some one who picks the later date will miss out a week of pension payment and will get extra pension of...
old State Pension *(1+triple lock%) * (number of weeks +1) *0.2%


So if triple lock % is greater than CPI% the extra pension in the later case is higher than the first case by more than the 0.2% for the extra week.


The key relationship is the difference between the triple lock % and the CPI%. And remember they are giving up a week of the whole pension not just a week of Extra pension.




edit: greenglide types quicker than me