Defering my state pension

Britvick

Hello, I defered my state pension last July 2019 when I reached pension age, as I am still working. I am wondering what to do this July 2020? I will still be working. When I finally decide to take my state pension, I am wondering if it is financially better to take the defered years as a lump sum or as an increased monthly pension. I feel that if I take it on a monthly basis I may not live long enough (I am very heathly) to recoupe the extra money that I have not claimed? Is there a link anywhere that sets this out so that I can study it or could someone answer my questions please. Many thanks.

molerat

There is no lump sum option for post 2016 pension deferment, one of the main the reasons it is not as good an option as the pre 2016 deferment.

xylophone

Hello, I defered my state pension last July 2019 when I reached pension age, 
if it is financially better to take the defered years as a lump sum or as an increased monthly pension. 

You are in the new state pension scheme - the lump sum option is not available.

See https://www.litrg.org.uk/tax-guides/pensioners/what-state-pension-deferral

Linton

The lump sum option only applies if you reached State Pension Age before April 2016.  Under the new SP you just get 5.8% extra pension in subsequent years.

Albermarle

I feel that if I take it on a monthly basis I may not live long enough (I am very heathly) 

A 65 year old man should on average live another 20 years ( a woman about another 22 years) 

This is an average which means 50% will live longer than that. If you are currently healthy with no very bad habits /chronic disease etc then that will probably be you ( but not guaranteed of course)

Britvick

Thank you for your answers. Is it worth keep defering it? will I reap the benefits?

Albermarle

Britvick said:

Thank you for your answers. Is it worth keep defering it? will I reap the benefits?

Your decision. It is basically a gamble on how long you will live.
One point to consider is tax . If you take it now whilst working will it maybe push you into a higher tax bracket ?
When you stop working if the state pension was your only source of income you would not pay tax on it, assuming it would be below the £12,500 personal allowance.

Linton

In pure cash terms I think it is pretty marginal and depends a lot on what you would have done with the money you gave up if you deferred.  Assuming average life expectancy you would expect to gain by deferring in total £s received especially if you take inflation into account.  However if you dont defer, receiving the money earlier means that you could invest it which would counter this apparent financial advantage to some extent - money now is worth more than money in n years time.

One definite advantage from deferring your State Pension arises if you want extra inflation linked income in later life.  You could see it as buying an inflation linked annuity at an annuity rate of 5.8% which is a lot better than you would get from a pension company.

Another reason for deferring could be to enable you to drawdown more at a lower tax band.

Britvick

I will pay tax either way as I will have a private pension when I am no longer working. Maybe I could make the private pension last longer by only drawing when I need it? and possibly pay less tax by doing so?

Albermarle

Britvick said:

I will pay tax either way as I will have a private pension when I am no longer working. Maybe I could make the private pension last longer by only drawing when I need it? and possibly pay less tax by doing so?

If it is a normal DC pension pot, you do not have to take it all if you do not, and leave it as an inheritance. Or you can take the 25 tax free lump sum and leave the rest . Or take it a few years later.

xylophone

Perhaps taking the SP now could enable the OP to make a bigger contribution to his private pension pot.