New State Pension Guide

Dazed_and_confused

To be honest I am still at a loss as to why you would want to do this.

That makes two of us

Straightbat

Sometimes things happen.

Actually I never planned to, only to defer, then got talked into it when I applied, not having realised before that I could have done. It was a hasty decision which I later regretted but has now been dealt with.

If you read my second post from two or three days ago now you might find out why deferment of this type (i.e. with later backpay) may be appropriate for some.

loiner

Straightbat wrote: »

Hi Loiner I'm not following you. If you want the "backdated payment" to be paid and taxed in the current tax year, why would you wait until April? If you claim it now, it will be paid and taxed in the current tax year. Or are you referring to backdating that would go back into the 18/19 tax year? Even so, you do not have to backdate a whole year. You could claim now and only backdate to April 6th (or is it the 5th). Your backdated and current claim could then be earning interest between now and next April.

Sorry, only just seen your post. In the meantime, I had come to exactly the same conclusion as yourself! I had a fixation on getting 12 months arrears paid, but now I realise I don't have to claim the full 12 months This week I am about to do exactly as you suggest ie claim arrears from 6 april 2019.

loiner

Straightbat wrote: »

(new state pension rules) Provided you defer for at least 9 weeks, you will get an increase of 1% for every 9 weeks of deferment including the first nine weeks. The increase will be calculated pro rata to the number of weeks where the deferment is not an exact multiple of nine weeks (e.g. 12 weeks, 1.33%). I have been advised that a part week would be rounded up. I understand you can defer for as many years as you want (although maybe the rules about increases could change in future)?

Thanks - i was just about to ask the pro rata question

Just been catching up on the posts from the last few days. I picked up something from DWP when I spoke to them last week that might help with the terminolgy that's being used here. When people defer their pension under the new scheme and request a lump sum payment (of up to 12 months), they call it a 'payment in arrears'. The term 'lump sum' payment is for those covered by the previous scheme.

loiner

badmemory wrote: »

To be honest I am still at a loss as to why you would want to do this. To take money without interest & quite possibly taxed. You could presumably do without it at the time or you would have taken it. Why is it now so urgent to take it, maybe pay tax on it, when you could increase your income for the rest of you life. Unless your life expectancy has recently seriously shortened (in which case my apologies for my intrusion) then there is no way any investment of this amount is going to cover what you are giving up in annual income.

Badmemory & dazedandconfused - FWIW, I'll give my reasoning for wanting to take money out without interest etc.

I was doing some consultancy work at the time I reached state pension age. Hence, I deferred my pension else I'd be paying 40% tax on it. I've stopped working now and, now it's December, have a clear indication of my income for the current tax year. I can request 'payment in arrears' from 6 April 2019 without going into the next tax bracket. Even then, I will still have 130+ weeks deferred. Given my age (late 60s) I think I'd prefer to take the money available to me now. I have a spreadsheet and chart showing I'd need to live another 17 or so years to make it more efficient to simply take the enhanced pension from now.

If anybody disagrees with my logic, I'd love to hear from them before I request payment.

Straightbat

Loiner about 17 years is the standard accepted break even point. Basically it amounts to gambling on life expectancy, as by deferring a pension you risk losing all or part of it for the possibility of gaining more in the long term. Of course if you save on tax by deferring, the break-even point will be less than 17 years. Other factors such as savings rates may also lengthen the time to break even if you lose interest on deferred payments but that is all too complex for me. (I did once read an analysis however - in the FT I think - trying to take that stuff into account and concluding that roughly a two year deferment was the ideal if things like tax rates aren't a factor, if you do survive the 17 years. But for my money there are too many variables to land on any deferment length with any sort of precision and it's a gamble anyway. The only thing I would say however is, the longer you leave it the less likely it is that you will attain the 17 years!)

I assume the 17 years uses a rule of thumb that you gain 5.8% per deferment year in each year of payment, so to regain the 100% lost takes 100÷5.8=17.24 years.

50Twuncle

Straightbat wrote: »

(new state pension rules) Provided you defer for at least 9 weeks, you will get an increase of 1% for every 9 weeks of deferment including the first nine weeks. The increase will be calculated pro rata to the number of weeks where the deferment is not an exact multiple of nine weeks (e.g. 12 weeks, 1.33%). I have been advised that a part week would be rounded up. I understand you can defer for as many years as you want (although maybe the rules about increases could change in future)?

So if I can defer for 2 years - that looks like an extra 11.55% ??

loiner

Straightbat wrote: »

Loiner about 17 years is the standard accepted break even point. Basically it amounts to gambling on life expectancy, as by deferring a pension you risk losing all or part of it for the possibility of gaining more in the long term. Of course if you save on tax by deferring, the break-even point will be less than 17 years. Other factors such as savings rates may also lengthen the time to break even if you lose interest on deferred payments but that is all too complex for me. (I did once read an analysis however - in the FT I think - trying to take that stuff into account and concluding that roughly a two year deferment was the ideal if things like tax rates aren't a factor, if you do survive the 17 years. But for my money there are too many variables to land on any deferment length with any sort of precision and it's a gamble anyway. The only thing I would say however is, the longer you leave it the less likely it is that you will attain the 17 years!)

I assume the 17 years uses a rule of thumb that you gain 5.8% per deferment year in each year of payment, so to regain the 100% lost takes 100÷5.8=17.24 years.

I simply calculated how much I would be paid this tax year (payment in arrears + weekly enhanced pension to April 2020) then added the annual enhanced payment for each of the next 20 years. That was in 1 column of a spreadsheet. In the next column, I calculated how much I'd get with the slighter higher enhanced pension this tax year, then added the enhanced annual pension for the next 20 years. I also increased the pension year on year by 2.5% (minimum of triple lock) in both cases. What I didn't do was add interest on this year's payment in arrears for this year and subsequent years. It's only an approximation anyway! This would make it even more sensible to take the payment in arrears this year.

50Twuncle

Is there (currrently) no limit on the extra payment that can be achieved by deferring then ?

badmemory

So far I have not seen any limit & there is none on the old state pension either. I can't see any gov limiting it either as it means they can postpone any extra costs to a future gov.