Deferred State pension then passing away before claiming anything

DairyQueen

pensionpawn said:

All academic if you give up the ghost just prior to activating your delayed SP. For a couple SP is £18,678.40 pa tax free. 

At the risk of being pedantic, SP is not tax free. It's taxable but not at source. It will be added to any other taxable income when calculating tax due each year.

pensionpawn

A thought just occurred to me regarding where this 5.8% figure may have come from. Both my parents made it to ~85 and looking at this data it would appear that 85 is the average UK life expectancy if you make it to 65, the previous SPA. So it stands to reason that the treasury's 'back of fag packet' calculations for the cost of the UK state pension was 20 years x SP on average. Testing that theory (now from age 67) that's 18 x £9339 = £168105 and if you divide that by 17 (because you deferred a year) you get £9888 which is ~5.8% extra. From that a case could be made that you could take your pension a year earlier at £8847pa to offer some flexibility for regions (careers) of the UK where life expectancy is less than average.

Malthusian

pensionpawn said:

A thought just occurred to me regarding where this 5.8% figure may have come from. Both my parents made it to ~85 and looking at this data it would appear that 85 is the average UK life expectancy if you make it to 65, the previous SPA. So it stands to reason that the treasury's 'back of fag packet' calculations for the cost of the UK state pension was 20 years x SP on average. Testing that theory (now from age 67) that's 18 x £9339 = £168105 and if you divide that by 17 (because you deferred a year) you get £9888 which is ~5.8% extra. From that a case could be made that you could take your pension a year earlier at £8847pa to offer some flexibility for regions (careers) of the UK where life expectancy is less than average.

Early State Pension is a non-starter. Firstly, you can't offer flexibility for certain regions, or certain careers, because apart from the obvious distortions (how long would you need to work in a factory before you get early State Pension), you would also have to give an earlier State Pension to ethnic minorities, fat people, smokers, etc etc. It has to be everyone or nobody; anything else would fall foul of discrimination legislation and identity politics.

And everyone would claim the "early" State Pension as soon as they could get it. We know they would because the terms for deferring it were exceptionally generous pre 2016, and are still better than anything on the open market post 2016, and yet almost everyone claims their SP as soon as they can get it, even those with private pension funds and savings to live off while they defer.

State Pension is the minimum acceptable income for someone with no other resources and too old to be expected to work, so State Pension minus 5.8% is under the breadline. Someone who retired a year before SPA on £8,847pa would have to be topped up with £492pa of means-tested benefits for life.

So you are essentially proposing that we reduce State Pension age, which we can't afford. It's the opposite of what we've been trying to do for the last few decades.

There is no case for someone who has a physically demanding career who can't keep it up until 66 to get early State Pension - they can get a less physically demanding job until they reach the age when democratic consensus says they should be free not to work at all (which is 66 for people currently reaching SPA). If they don't want to do one or want a higher standard of living than they can earn after a job change, that's their own responsibility, same for every other working-age adult. If they're unfortunate enough to be physically unable to do any job due to disability, there are separate state benefits to cover that.

underground99

pensionpawn said:

 From that a case could be made that you could take your pension a year earlier at £8847pa to offer some flexibility for regions (careers) of the UK where life expectancy is less than average.

All kinds of cases can be made -and probably have been, over the years. Letting you have early access to state pension in exchange for accepting a lower pension income for the rest of your life, can be problematic.

For example if you do a tough job or live in a 'poor health outcomes' location you might very much like to take something less than £9k a year even if you could have got the full £9k by waiting longer. But then when your 'lower than standard' pension doesn't cover your eventual living costs, the government will find it politically difficult to say you can't have welfare benefits to help you out because you'd been having all this pension benefit money from an earlier age.  

That wouldn't be a problem for people with large pension pots or other DB arrangements, to drop down to some minimum state pension - but obviously not ideal to say there's a new policy in relation to this state pension that gives extra flexibility and we only want to give it to people who already have moneybags

michaels

So it is not a bad idea per say and would actually probably be a boon to the average taxpayer as people would take their pension early despite it being a bad deal, probably with some still working as well and thus paying extra tax, but that it wouldn't work in practice as the current state pension level is also a 'minimum acceptable income' level for a pensioner so any reduction in total pension to those who did not have any additional pension provision would have to be made up by additional means tested benefits payments.

jamesd

The single tier state pension level is set a little above the minimum income guarantee level that pension credit provides. Permitting taking it earlier at a reduced level would be expected to increase means tested benefit costs.