Deferred Pension "Hot Spot"?

uk1

LXdaddy wrote: »

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

The deferral calculation is based on the state pension on the date you retire.

The illustration I gave in my OP was for my wife either taken on 5th April 2016 or during the week after.

On the 5th April 2016 the pension they will use for the deferral calculation will be £115.95. The week later they will use £119.95 won't they? So the week before she will get all her deferred weeks at 0.2% per week on £115.95. If she waits a week she will get all her deferred weeks plus one extra week on £119.95.

No? What situation might offer a better option in that situation please?

Jeff

LXdaddy

uk1 wrote: »

The deferral calculation is based on the state pension on the date you retire. Not quite - is as at the day you start taking your pension.

The illustration I gave in my OP was for my wife either taken on 5th April 2016 or during the week after.

On the 5th April 2016 the pension they will use for the deferral calculation will be £115.95. The week later they will use £119.95 won't they? So the week before she will get all her deferred weeks at 0.2% per week on £115.95. If she waits a week she will get all her deferred weeks plus one extra week on £119.95.

No? What situation might offer a better option in that situation please?

Jeff

I agree that the starting point for the calculation is higher the week later. But the extra pension calculated on the earlier week will itself be increased by CPI% a week later.


It IS better to defer. It is just not quite as big a difference as you suggest.

greenglide

The amount awarded as increments on 5th April will be uprated the following week. The increments will all be incremented by CPI but in the case of the award after 5th April the basic will have been uprated by triple lock before the increment are awarded.

uk1

LXdaddy wrote: »

I agree that the starting point for the calculation is higher the week later. But the extra pension calculated on the earlier week will itself be increased by CPI% a week later.


It IS better to defer. It is just not quite as big a difference as you suggest.

Can you make your point using actual figures based on the example I gave please.

Thanks.

bigfreddiel

uk1 wrote: »

The deferral calculation is based on the state pension on the date you retire.

The illustration I gave in my OP was for my wife either taken on 5th April 2016 or during the week after.

On the 5th April 2016 the pension they will use for the deferral calculation will be £115.95. The week later they will use £119.95 won't they? So the week before she will get all her deferred weeks at 0.2% per week on £115.95. If she waits a week she will get all her deferred weeks plus one extra week on £119.95.

No? What situation might offer a better option in that situation please?

Jeff

Isn't the state pension on 6 apr 2016 going to be £155/week?

luvchocolate

the £155 is for anyone who is at state pension age after 5th April. Very interesting thread I started deferring Sept 2014 and done my calculations from the amount at that time...It may be more than I thought!

brewerdave

Don't want to reopen the can of worms -but isn't it also important to calculate the number of weeks since SP date to ensure that it is divisible exactly by 5 to prevent the loss of the odd weeks on the deferral calculation ? Or has someone got a definitive answer from DWP on this?

jamesd

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. ... 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?

No, it's quite possibly the worst possible time:

1. A person who defers gets on top of the deferral increase, all of the other increases that apply from the time they started deferring. If your wife started with her first payment on 5 April all that would happen is that a week later she'd get the usual inflation-related increase, so one week at the lower amount then the rest from then on at the higher one. She would in addition get an extra 0.2% for the extra week of delay if she waited a week, though.

2. A date on or just after 6 April puts the whole pension in that tax year. There may be personal allowance left unused in the previous year that could be used by starting to take the pension sooner. That in turn could free up some more allowance to use in the following tax year. This aspect is what makes it possibly the worst time, but it's moot if there's unused allowance in the following year as well.

brewerdave wrote: »

Isn't it also important to calculate the number of weeks since SP date to ensure that it is divisible exactly by 5 to prevent the loss of the odd weeks on the deferral calculation ?

Once you have the initial minimum number of weeks to qualify (starts at 5 weeks for pre-6 April 2016 SPA) the calculation is by week. I assume that it's quite often expressed as 1% per five weeks instead of 0.2% a week (see page 7) because many people with lower mathematics skills are more comfortable with whole numbers. It's also unfortunate that the examples tend to be for multiples of five instead of being crafted to illustrate that it is by week. Less for post 6 April 2016 accruals.

uk1

Thanks James,

Tax isn't an issue for the wife irrespective of date she starts her pension ... so to double check I understood your other point ......

1. A person who defers gets on top of the deferral increase, all of the other increases that apply from the time they started deferring. If your wife started with her first payment on 5 April all that would happen is that a week later she'd get the usual inflation-related increase, so one week at the lower amount then the rest from then on at the higher one. She would in addition get an extra 0.2% for the extra week of delay if she waited a week, though.

..... the suggestion is that she takes her pension at the start of the new tax year (6th April?) just as the increased state pension locks in. Is your point simply that the longer she leaves it the better? I am puzzled by the comment "No, it's quite possibly the worst possible time:" ....

My point was that it is better to get your total deferral percentage increases of 10.4% per year on £115.95 for the rest of your life than on £113.10 which it would be the week before. You seem to be saying that this is the worst option which confuses me.

Any expansion of your point would be appreciated as I'm still as you can see confused.

Jeff

uk1

brewerdave wrote: »

Don't want to reopen the can of worms -but isn't it also important to calculate the number of weeks since SP date to ensure that it is divisible exactly by 5 to prevent the loss of the odd weeks on the deferral calculation ? Or has someone got a definitive answer from DWP on this?

Relax Dave, several people have repeated this but it is untrue for the "old pension". As James said you get 0.2% for each week. I tracked the original pdf.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/324636/br1.pdf

Extra State Pension

You can choose to get extra State Pension if you put off claiming your State Pension for 5 weeks or more. When you do claim, you will get a higher weekly State Pension for the rest of your life.

The amount of extra State Pension you get is 0.2% of your weekly State Pension for each week you have put off your claim. This works out at 1% for every 5 weeks, and 10.4% for a full year.

Jeff