Deferring state pension.

talexuser

I've had my letter to claim for the state pension, forecast is a few £ below 8.6k. Reading around the effective rate for deferring is good for a perfectly "safe" investment (safe as long as a future government doesn't decide to fiddle around with the rules once they decide it is becoming too expensive).

Now assuming:
1 you don't actually need the money to run your life,

2 and on average you have another 20+ years to go based on averages

if you were happy with your S&S ISA, would you use it to max out your ISA every year, or defer? Opinions welcome, thanks.

xylophone

Is the question would other posters choose to draw the state pension and contribute it to the S&S ISA in preference to deferring it on these terms?

https://www.gov.uk/deferring-state-pension/what-you-get

Your State Pension will increase every week you defer, as long as you defer for at least 9 weeks.

Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every full year.

The extra amount is paid with your regular State Pension payment.

Example:
You get £164.35 a week (the full new State Pension). This works out as £8,546.20 a year.

By deferring for one year, you’ll get an extra £493 a year (just under 5.8% of £8,546.20).

https://www.thisismoney.co.uk/money/pensions/article-4565554/If-delay-state-pension-die-heirs-lose-out.html

I think I'd take the pension - I'd either invest it or if I had no real need for it, consider making regular gifts from income to younger family members etc.

Alice_Holt

Unless by deferral you avoid entering a higher tax band, my inclination would also be to take the SP.
I believe the break-even point is now around 18 years.

Another factor to consider is that the deferral portion uprate % for future years is less than that for the main pension. The triple lock doesn't apply to deferral increases.

If you change your mind, I believe you can still defer after taking the SP.

A question - does one need to defer in blocks of 9 weeks, or after the initial 9 weeks deferral period is the deferral increase calculated by week?

Linton

I am deferring my SP under the old generous rate of 10.4%/year. The objective is to:

- enable full drawdown of DC pension without paying higher rate tax.
- increase future inflation linked income to cover the fading of fixed rate annuities.


Whether it increases the total money received from SP is irrelevent.

drumtochty

The main problem is it takes say 17 years after you start taking your deffered pension if you reached state pension age after April 2016, to get your money back.


If you have a partner who outlives you and you die before the brake even point is reached they do not get the money still owed to your estate to reach the brake even point.


If you take the state pension and invest it, if you do not need it to live on, in all likely hood if you die early your partner will get the investment pot you have left

pensionpawn

Another factor is passing on an inheritance. When you croke it your state pension goes with you (for most of us). If you take your state pension as soon as it becomes available then your are preserving more of your own fund to pass on. Also, which has the most growth potential, your own fund or the state pension? My personal pension planning is to take the SP as soon as available. My father used to say' tomorrow is never promised', in other words make the best use of each day. I'd be rather !!!!ed (from above...) if I deferred my SP for n days and croked it on day n-1! To be honest, I believe there is a case for those who have seen the age of their SP rise to be able to take their SP at a reduced rate earlier.

talexuser

Thanks everyone for clarifying my thoughts. my initial reaction was to take it and invest it. The only niggle was the safety of any increase effectively guaranteed by the government. Now if the rate was still around the 10% that Linton managed that would be a further argument for a risk free deal you can't get anywhere else. However I am happy to weather the next correction (or two) without cashing in, so will use it to maximise my ISA, and the pot for the grandkids.

barnstar2077

talexuser wrote: »

Thanks everyone for clarifying my thoughts. my initial reaction was to take it and invest it. The only niggle was the safety of any increase effectively guaranteed by the government. Now if the rate was still around the 10% that Linton managed that would be a further argument for a risk free deal you can't get anywhere else. However I am happy to weather the next correction (or two) without cashing in, so will use it to maximise my ISA, and the pot for the grandkids.

I think this is a great idea. My grandfather left me a small sum locked away until I was 25. It helped me out a great deal in setting me up for the future. I know if I had been able to get my hands on it earlier I would have just wasted it.