State Pension

melbury

I am bit confused about what happens when you defer claiming state pension.  I had intended to defer claiming for a year or so as I am still working, however, I read on a financial site that even if you defer for just one year it takes 17.5 years to get that money back, so I have decided to claim it now and just pay the extra tax.

From what I have read on the government website, if you defer for even just 9 weeks then your weekly pension increases by 1%.  Therefore, if I were to claim it now would I receive £168.60 + 1% (£1.69) = £170.29 per week?  Presumably you don't get £1,517.40 - i.e. the 9 weeks pension.  It is not very clear, or at least to me it isn't.

Am I completely wrong in my understanding of this?

Many thanks for any info.


    

bolwin1

This means that you defer the start date of the pension by 9 weeks & your pension going forwards would be a the slightly higher rate. It's not backdated. So you lose the 9 weeks at £168.80 forever & slowly claw the 'missing' £1,517 back at £1.69 per week - hence the 17 years to break even. 

melbury

bolwin1 said:

This means that you defer the start date of the pension by 9 weeks & your pension going forwards would be a the slightly higher rate. It's not backdated. So you lose the 9 weeks at £168.80 forever & slowly claw the 'missing' £1,517 back at £1.69 per week - hence the 17 years to break even. 

Thank you, this is what I thought.  So it is really a no brainer in that it is far more beneficial to claim the pension now.

xylophone

https://www.which.co.uk/money/pensions-and-retirement/state-pension/deferring-your-state-pension-ahr9w8p0f87w

Dazed_and_C0nfused

Thank you, this is what I thought.  So it is really a no brainer in that it is far more beneficial to claim the pension now.

For you maybe but if you were paying 40% tax now on that £1,517 it would only be a real loss of £910.

In return you say you would be getting £87.88/year extra State Pension.

So assuming you are a basic rate payer in retirement then you will gain £70/year after tax.

So the £910 is cleared in just 13 years.  And that is before taking account of the annual increase your State Pension will have each year.

jamesd

melbury said:

So it is really a no brainer in that it is far more beneficial to claim the pension now.

No. It's usually the other way  around. Depends on life expectancy and whether you want to use it as a form of longevity insurance. What you'd do with the money also matters. For normal life expectancy a  decent choice is thee years of deferral for men or five for women.

melbury

I would have definitely deferred if I had been entitled to state pension at 60. 

However, I am nearly 66 and have a few health issues so feel it might be more beneficial to take the money now and cut my working hours, so that I end up with much the same amount of money each month.  Although I have a small amount of money in a private pension (started way too late in life), the firm's financial adviser told me it is not worth buying an annuity with it and I would be better to just draw down money as required.

It just struck me that to have to wait 17.5 years to get back one year's worth of pension is quite an eye opener.

lisyloo

If you’re relatively certain you might live that long (and some people have parents in their 90s) and you don’t need the money then surely it’s a no brainer.
if on top of that you might pay less tax I.e. be in a lower tax bracket then it makes sense,

it’s not a one size fits all solution.

badmemory

Have you actually checked what your state pension is?   If you have worked most of your life & not been in a defined benefit scheme then that would seem to be quite a low amount.  Please check carefully before making a decision.  Afterall 1% of £250 is a whole different ballgame.  Do you have a savings account that could give you 5.8% interest?

melbury

badmemory said:

Have you actually checked what your state pension is?   If you have worked most of your life & not been in a defined benefit scheme then that would seem to be quite a low amount.  Please check carefully before making a decision.  Afterall 1% of £250 is a whole different ballgame.  Do you have a savings account that could give you 5.8% interest?

Yes I have checked and it is the standard amount of £168.60, plus for some reason that I cannot remember, an extra £9.20 per week. I agree about the savings account and getting 5.8%, but hopefully one day interest rates will rise.  I just think that 17.5 years is a very long time to get the payback.

fifeken

badmemory said:

Do you have a savings account that could give you 5.8% interest?

The OP would get 5.8% more on their pension, but a savings account would let them take out the capital invested too.  With the pension, they effectively "lose" the capital so it's not a like for like comparison surely?