Deferred Pension "Hot Spot"?

Froglet

I have read through all of this particular post and so please excuse me if I am being especially thick in not really understanding.


Hubby has decided to defer his pension,due to begin last month,for at least 6 months if not longer.I understood that it goes purely on a percentage for each week that you don't take it,until you do.That percentage is based on your entitlement,ie the basic plus any extras.When that goes up in April it is then based on the higher amount,because the basic rate has gone up.Is that correct? A little doubt has crept in after reading this post that it will always be based on the rate that applied at the time you decided to defer.That may sound crazy but I would just like someone with more knowledge(and sense ) !! than me to confirm.


Thanks.

mgdavid

think it's the opposite - see the bit in red in post #13.
To our advantage.

Froglet

That is what I have been led to understand,but some of the posts on this topic have made me question it !

uk1

Froglet wrote: »

I have read through all of this particular post and so please excuse me if I am being especially thick in not really understanding.


Hubby has decided to defer his pension,due to begin last month,for at least 6 months if not longer.I understood that it goes purely on a percentage for each week that you don't take it,until you do.That percentage is based on your entitlement,ie the basic plus any extras.When that goes up in April it is then based on the higher amount,because the basic rate has gone up.Is that correct? A little doubt has crept in after reading this post that it will always be based on the rate that applied at the time you decided to defer.That may sound crazy but I would just like someone with more knowledge(and sense ) !! than me to confirm.


Thanks.

mgdavid wrote: »

think it's the opposite - see the bit in red in post #13.
To our advantage.

Froglet wrote: »

That is what I have been led to understand,but some of the posts on this topic have made me question it !

This took me some time to get to the bottom of some time ago so I share the pain.

The deferred increase is based on the pension on the date you actually take your pension not what was payable on the date you could have originally taken it ... in part the reason behind me starting the thread about the new tax year hot spot.

There is a general problem with all forums, but particularly forums (fora!) concerning complex issues like pensions where there are posts providing incorrect facts and information, made worst when several people reinforce the misinformation. Another example is the issue about the deferral only being for 5 week chunks when (as I posted the links to) it is 0.2% per week ie weekly. The issue is compounded because when people realise they have posted inaccurately they "forget" to repost saying "sorry - I got that wrong - pleased to be corrected.". So a lot of doubt rermains when it would easily be made to be helpful by subsequent claifacation. Everyone then ends up feeling confused and doubting what they previously thought to be true.

This is the document:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

They provide a fully worked example containing the important phrase:

Example – Extra State Pension


Ann reached State Pension age in 2011 and decided to put off claiming her State Pension. She starts claiming it from May 2013. On the date she claims, her weekly StatePension (before we add any extra State Pension) is £120.

It then goes on to calculate her increased pension based on the amount of deferral increase based on the pension on the date she takes it not on the date she originally could have taken it.

Hope this reassures once and for all.



Jeff

Froglet

uk1 wrote: »

This took me some time to get to the bottom of some time ago so I share the pain.

The deferred increase is based on the pension on the date you actually take your pension not what was payable on the date you could have originally taken it ... in part the reason behind me starting the thread about the new tax year hot spot.

There is a general problem with all forums, but particularly forums (fora!) concerning complex issues like pensions where there are posts providing incorrect facts and information, made worst when several people reinforce the misinformation. Another example is the issue about the deferral only being for 5 week chunks when (as I posted the links to) it is 0.2% per week ie weekly. The issue is compounded because when people realise they have posted inaccurately they "forget" to repost saying "sorry - I got that wrong - pleased to be corrected.". So a lot of doubt rermains when it would easily be made to be helpful by subsequent claifacation. Everyone then ends up feeling confused and doubting what they previously thought to be true.

This is the document:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

They provide a fully worked example containing the important phrase:

It then goes on to calculate her increased pension based on the amount of deferral increase based on the pension on the date she takes it not on the date she originally could have taken it.

Hope this reassures once and for all.



Jeff

Thanks Jeff , that is nice and clear now.Pensions,as you say,can be confusing at the best of times,and sometimes the more you read,the more confusing it becomes !

mgdavid

so the bit in red in post #13 is correct.
Why use 8 words when half a page can be written?

uk1

mgdavid wrote: »

so the bit in red in post #13 is correct.
Why use 8 words when half a page can be written?

Why use 20 words when none would have been better?


Jeff

uk1

I'm restarting this thread to share exchanges I have been having with the Pensions Advisory Service. The exchanges so far have been:

[FONT=&quot]“A general question about deferring state pension. I have already deferred and I am choosing the date when I will choose to take my pension. Am I right in saying (for example) that it is better to take my pension on or shortly after 6th April 2016 rather than shortly before because I would then benefit from the triple lock increase due each year on that date? In fact this date is a sort of "hot spot" when choosing?”[/FONT]

[FONT=&quot]An interesting point. I have tested a few examples and it makes no difference whether you take the deferred pension before April and the ‘Triple Lock’ increase or after. For fairness my testing was done assuming the same deferral period i.e. 100 weeks.[/FONT]

[FONT=&quot]Having said that, for each additional 5 week period you defer claiming your pension the pension will be increased by a further 1%. So if you compare taking the pension at the beginning of March with taking it in the 2nd week of April there will be a 1% difference in uplift because you will have deferred for a further 5 weeks.[/FONT]

Many thanks for your reply, forgive me questioning but I would just like to understand your reply when you say "no difference" as I am clearly missing something.

The Extra Pension from taking the pension "before April 6th" will be increased by CPI only on say 6th April. Unfortunately this particular year the CPI is actually negative so the increase will be zero. If I were to wait a week the base against which the deferred (State pension) would be multiplied would have increased instead by the triple lock thus 2.5%

In a year when CPI is higher than the other two parts of the triple lock the payment would be the same other than the additional 0.2% per week increase. So in this year when the triple lock is greater than either cpi or average pay wouldn't it better to delay into April if you were thinking of drawing your state pension in March to benefit from the 2.5% increase rather than the zero increase?

Thanks

[FONT=&quot]I am not entirely sure I understand the point you are making and that may be my fault. [/FONT]

[FONT=&quot]The basic state pension increases every year in line with the triple lock and the additional pension by CPI. Both parts of the State Pension will be increased in deferment by 1% for each 5 weeks you have delayed drawing them.[/FONT]

[FONT=&quot]Whether you take in the last week of March or the first week in April the only difference will be whether the amount of increase for deferment has increased because you have delayed by another 5 weeks. [/FONT]

[FONT=&quot]For example if your pension when you start claiming at the end of March is payable at the rate of £150 having deferred it for 2 years it will be uplifted by 20.8% to £181.20. If it then increased in April by 2.5% it would increase to £185.73.[/FONT]

[FONT=&quot]If you left the pension until April the £150 would have increased lets say by 2.5% i.e. £153.75. If that were then uplifted by 20.8% for the 2 years deferred that would increase to £185.73.[/FONT]

[FONT=&quot]As you can see there is no difference. I have assumed in that example that the whole pension is increased by 2.5% whereas in practise part would increase by the triple lock and part by CPI.[/FONT]

[FONT=&quot]In fact I believe that the triple lock will increase the basic state pension by 2.9% in April 2016.[/FONT]

[FONT=&quot]I hope that I have addressed the point you are making. If I haven’t do feel free to come back to me with hopefuly a breakdown of your pension i.e. basic state pension and additional state pension[/FONT]

[FONT=&quot]Kind regards[/FONT]

My question is ....... are they correct. In all detail including the 2.9% increase?

If not I'd appreciate help with composing a further reply, and in return I'll share the reply here.

Jeff

uk1

I'm restarting this thread to share exchanges I have been having with the Pensions Advisory Service. The exchanges so far have been:

[FONT=&quot]“A general question about deferring state pension. I have already deferred and I am choosing the date when I will choose to take my pension. Am I right in saying (for example) that it is better to take my pension on or shortly after 6th April 2016 rather than shortly before because I would then benefit from the triple lock increase due each year on that date? In fact this date is a sort of "hot spot" when choosing?”[/FONT]

[FONT=&quot]An interesting point. I have tested a few examples and it makes no difference whether you take the deferred pension before April and the ‘Triple Lock’ increase or after. For fairness my testing was done assuming the same deferral period i.e. 100 weeks.[/FONT]

[FONT=&quot]Having said that, for each additional 5 week period you defer claiming your pension the pension will be increased by a further 1%. So if you compare taking the pension at the beginning of March with taking it in the 2nd week of April there will be a 1% difference in uplift because you will have deferred for a further 5 weeks.[/FONT]

Many thanks for your reply, forgive me questioning but I would just like to understand your reply when you say "no difference" as I am clearly missing something.

The Extra Pension from taking the pension "before April 6th" will be increased by CPI only on say 6th April. Unfortunately this particular year the CPI is actually negative so the increase will be zero. If I were to wait a week the base against which the deferred (State pension) would be multiplied would have increased instead by the triple lock thus 2.5%

In a year when CPI is higher than the other two parts of the triple lock the payment would be the same other than the additional 0.2% per week increase. So in this year when the triple lock is greater than either cpi or average pay wouldn't it better to delay into April if you were thinking of drawing your state pension in March to benefit from the 2.5% increase rather than the zero increase?

Thanks

[FONT=&quot]I am not entirely sure I understand the point you are making and that may be my fault. [/FONT]

[FONT=&quot]The basic state pension increases every year in line with the triple lock and the additional pension by CPI. Both parts of the State Pension will be increased in deferment by 1% for each 5 weeks you have delayed drawing them.[/FONT]

[FONT=&quot]Whether you take in the last week of March or the first week in April the only difference will be whether the amount of increase for deferment has increased because you have delayed by another 5 weeks. [/FONT]

[FONT=&quot]For example if your pension when you start claiming at the end of March is payable at the rate of £150 having deferred it for 2 years it will be uplifted by 20.8% to £181.20. If it then increased in April by 2.5% it would increase to £185.73.[/FONT]

[FONT=&quot]If you left the pension until April the £150 would have increased lets say by 2.5% i.e. £153.75. If that were then uplifted by 20.8% for the 2 years deferred that would increase to £185.73.[/FONT]

[FONT=&quot]As you can see there is no difference. I have assumed in that example that the whole pension is increased by 2.5% whereas in practise part would increase by the triple lock and part by CPI.[/FONT]

[FONT=&quot]In fact I believe that the triple lock will increase the basic state pension by 2.9% in April 2016.[/FONT]

[FONT=&quot]I hope that I have addressed the point you are making. If I haven’t do feel free to come back to me with hopefuly a breakdown of your pension i.e. basic state pension and additional state pension[/FONT]

[FONT=&quot]Kind regards[/FONT]

My question is ....... are they correct. In all detail including the 2.9% increase? Seems wierd to me so I am now even more confused. Perhaps the part I have boldened and underlined is where their calculation is why the reply is incorrect and in fact is the heart of the issue?

If not I'd appreciate help with composing a further reply, and in return I'll share the reply here.

Jeff

greenglide

[FONT=&quot]As you can see there is no difference. I have assumed in that example that the whole pension is increased by 2.5% whereas in practise part would increase by the triple lock and part by CPI.[/FONT]

It is the fact that part is uprated by triple lock and part by CPI which gives the difference so you cannot make that assumption. After uprating (April 11 this year?) a larger amount has been uprated by triple lock.