Deferring SP no longer worthwhile?

Vortigern

Refs:
Earlier Thread: State Pension - deferring and top-ups

Analysis by John Dagpunar from 2015

John Kay's calculator

I had the misfortune to reach my SPA of 65 shortly after 5 April 2016 and having been contracted out for most of my career my state pension would be little more than the basic £122.30 per week. (Yes, I have had a forecast and checked NI history)

I can't increase this by buying class 3A NI, or by going back to work, the only way I can increase it is by deferral, so I have not yet claimed my SP.

Having read the above referenced thread, I'm beginning to wonder whether I've made the right decision.

John Dagpunar concludes that "Unless there is good reason to believe that an individual's life expectancy is appreciably larger than the UK national average, it is probably not worth deferring under the new pension rules."

I've no reason to believe my life expectancy will be more than average. (Male ex-smoker in good health)

John Kay's calculator suggests that a short deferral might benefit somebody who would just bung the spare cash in a bank account earning less than inflation, but would not benefit someone who would invest and earn more than that.

Given that I intend to invest any spare cash I have in S&S ISAs and SIPP, it seems I should stop deferring pronto?

jamesd mentions that deferral provides "longevity insurance" - but do I need longevity insurance when I have an index-linked DB pension?

So, should I continue to defer? Or claim my SP now?

If claiming:
How long does it take to process?
Should I aim for an exact number of weeks from my birthday?
- or wait for next birthday?
- or wait for next SP increment?

LHW99

If you can, make sure you have deferred for at least 9 weeks, else you get no benefit at all, then if you continue it looks as if it should be in "chunks of 9 weeks.
https://www.gov.uk/deferring-state-pension/what-you-get

kidmugsy

Vortigern wrote: »

I have not yet claimed my SP. ... I'm beginning to wonder whether I've made the right decision.

John Dagpunar concludes that "Unless there is good reason to believe that an individual's life expectancy is appreciably larger than the UK national average, it is probably not worth deferring under the new pension rules."

John Kay's calculator suggests that a short deferral might benefit somebody who would just bung the spare cash in a bank account earning less than inflation, but would not benefit someone who would invest and earn more than that.

Given that I intend to invest any spare cash I have in S&S ISAs and SIPP, it seems I should stop deferring pronto?

jamesd mentions that deferral provides "longevity insurance" - but do I need longevity insurance when I have an index-linked DB pension?

Whether to defer is now, with the new-style pension, a rather marginal decision for many people. Its wisdom depends on the rest of your financial affairs. For example, someone healthy who is working past State Pension Age and paying higher rate tax would probably be wise to defer if he's going to pay basic rate tax when he does retire. Someone healthy who lacks a DB pension might benefit from the longevity insurance, as jamesd argues.

I add that someone healthy who expects a stock market collapse in the next year or two might gain, long term, by deferring his pension rather than drawing it and investing it in equities. Or someone healthy who'd like to de-risk his investment portfolio might defer, arguing that it's roughly similar to investing in long-dated index-linked gilts but on superior terms.

But in general deferral is decidedly less attractive than it is/was for old-style pensions. So I should hope; the old-style deal was awfully expensive for taxpayers.

Vortigern

LHW99 wrote: »

If you can, make sure you have deferred for at least 9 weeks, else you get no benefit at all, then if you continue it looks as if it should be in "chunks of 9 weeks.
https://www.gov.uk/deferring-state-pension/what-you-get

I've already deferred by several times 9 weeks, but thanks for your concern.

From your link, I read:
"Your State Pension will increase every week you defer, as long as you defer for at least 9 weeks."

My emphasis, but it seems to imply weekly increments pro-rata once the initial 9 week period has passed. They just use the 1% per 9 weeks to express the benefit more simply. Can anyone confirm that it increases weekly?

kidmugsy - I'm a basic rate taxpayer and expect to remain so after claiming my pension. The pension income will push some of my savings income into taxation.

Your penultimate paragraph seems to suggest timing the market rather than time in the market, and with guaranteed index-linked income for life I'm not inclined to de-risk.

Asghar

So, under the new State Pension rules and deferral rate it would take just over 17 years to make back the pension deferred for one year.

That's not taking into account someone's income or tax rate.

pandora205

Asghar wrote: »

So, under the new State Pension rules and deferral rate it would take just over 17 years to make back the pension deferred for one year.

That's not taking into account someone's income or tax rate.

Is that for men and women? Answering my own question, of course, it would be both - just the starting point would be different as would the life expectancy.

Alter_ego

I deferred under the old system (10.4%) just about ready to reclaim after 3 yrs. Have to live about 10yrs to break even.

Vortigern

Alter_ego wrote: »

I deferred under the old system (10.4%) just about ready to reclaim after 3 yrs. Have to live about 10yrs to break even.

Lucky you!

Had I been born 2 months earlier I'd have been on the old rate too!

Alter_ego

Vortigern wrote: »

Lucky you!

Had I been born 2 months earlier I'd have been on the old rate too!

Yes, I wish I could wait longer to reclaim, but I'd already drawn the pension for 7 yrs. So actuarily I have to reclaim soon. Maybe I'll hang on till after the April rise as that looks like being a decent one.

kidmugsy

Vortigern wrote: »

Your penultimate paragraph seems to suggest timing the market rather than time in the market

And why not? The doctrine of hoping that time in the market will do the trick might be OK for youngish people mindlessly investing spare income every month, but it's pretty risky for people who enter retirement when the markets are very high.