Calculation of Deferred SP

Linton

MK62 said:

Why will the extra 10% only increase by CPI?
It's protected payments which will increase by CPI only.....and in this case there isn't one. 
My understanding is that if you defer a full NSP for 90 weeks, you'll then get the full NSP plus 10%..........and will always get full NSP plus 10% for the rest of your life......perhaps only the DWP could confirm though, either way.

No, the portion of your SP from deferment is known as "Extra" State Pension and only increases subsequently  by CPI.  It is just the base SP which is sbject to the triple lock.  So the Extra SP will form a smaller % of the total over time.

See the end of: https://www.gov.uk/deferring-state-pension/what-you-get

Audaxer

Linton said:

MK62 said:

Why will the extra 10% only increase by CPI?
It's protected payments which will increase by CPI only.....and in this case there isn't one. 
My understanding is that if you defer a full NSP for 90 weeks, you'll then get the full NSP plus 10%..........and will always get full NSP plus 10% for the rest of your life......perhaps only the DWP could confirm though, either way.

No, the portion of your SP from deferment is known as "Extra" State Pension and only increases subsequently  by CPI.  It is just the base SP which is sbject to the triple lock.  So the Extra SP will form a smaller % of the total over time.

See the end of: https://www.gov.uk/deferring-state-pension/what-you-get

@Linton, I understand that is the case in view what you and others have said, but the guidance doesn't make that clear and I'm sure most people, especially those not on this forum, would assume that if they defer, the total amount including the deferred part, would increase by the triple lock when in payment. 

zagfles

Audaxer said:

Linton said:

MK62 said:

Why will the extra 10% only increase by CPI?
It's protected payments which will increase by CPI only.....and in this case there isn't one. 
My understanding is that if you defer a full NSP for 90 weeks, you'll then get the full NSP plus 10%..........and will always get full NSP plus 10% for the rest of your life......perhaps only the DWP could confirm though, either way.

No, the portion of your SP from deferment is known as "Extra" State Pension and only increases subsequently  by CPI.  It is just the base SP which is sbject to the triple lock.  So the Extra SP will form a smaller % of the total over time.

See the end of: https://www.gov.uk/deferring-state-pension/what-you-get

@Linton, I understand that is the case in view what you and others have said, but the guidance doesn't make that clear and I'm sure most people, especially those not on this forum, would assume that if they defer, the total amount including the deferred part, would increase by the triple lock when in payment. 

The guidance in the link above, which is the top hit if you google "defer state pension", makes it perfectly clear:

"Annual increases

After you claim your State Pension, the extra amount you get because you deferred will usually increase each year based on the Consumer Price Index. It will not increase for some people who live abroad."

MK62

Well that clears that up then....😉
Personally, my current plan is to only defer to the start of the new tax year after my SP age...... the extra, in today's money, will only be about £3pw, so won't be making much of a difference in lifestyle either way.

sheslookinhot

I’ll defer my SP until my small SIPP is exhausted two maybe 3 years max. I want to avoid paying tax at the higher rate.

DairyQueen

Thanks for all the contributions. I am glad that I asked the question as I was initially one of those who were under the (mistaken) belief that the premium accrued for deferring would also be increased by triple lock.

Am I correct in my assumption that if you suspend SP once in payment, rather than deferring from SPA, that the same formula applies? I think you are allowed to defer from SPA or (once) after SP is payment.

 i.e. Single tier would increase by triple lock from the date of deferral (suspension?) until restarted. This amount would then continue to receive triple lock increases once restarted. Protected amounts would receive CPI increases whilst deferred (suspended?).

Whilst deferred, an 'extra' amount would be earned at the rate of 5.8% of the value received at the point of suspension. Once restarted, this extra amount would increase only by CPI.

I realise that deferring SP later in life means less time to recoup the foregone pension but it may be preferable to a chunky tax bill.

zagfles

DairyQueen said:

Thanks for all the contributions. I am glad that I asked the question as I was initially one of those who were under the (mistaken) belief that the premium accrued for deferring would also be increased by triple lock.

Am I correct in my assumption that if you suspend SP once in payment, rather than deferring from SPA, that the same formula applies? I think you are allowed to defer from SPA or (once) after SP is payment.

 i.e. Single tier would increase by triple lock from the date of deferral (suspension?) until restarted. This amount would then continue to receive triple lock increases once restarted. Protected amounts would receive CPI increases whilst deferred (suspended?).

Whilst deferred, an 'extra' amount would be earned at the rate of 5.8% of the value received at the point of suspension. Once restarted, this extra amount would increase only by CPI.

I realise that deferring SP later in life means less time to recoup the foregone pension but it may be preferable to a chunky tax bill.

That's my understanding. However important to remember none of this is guaranteed, it can be changed by whim of govt/parliament, eg next year triple lock is suspended, some years ago they replaced RPI with CPI etc.

DairyQueen

zagfles said:

DairyQueen said:

Thanks for all the contributions. I am glad that I asked the question as I was initially one of those who were under the (mistaken) belief that the premium accrued for deferring would also be increased by triple lock.

Am I correct in my assumption that if you suspend SP once in payment, rather than deferring from SPA, that the same formula applies? I think you are allowed to defer from SPA or (once) after SP is payment.

 i.e. Single tier would increase by triple lock from the date of deferral (suspension?) until restarted. This amount would then continue to receive triple lock increases once restarted. Protected amounts would receive CPI increases whilst deferred (suspended?).

Whilst deferred, an 'extra' amount would be earned at the rate of 5.8% of the value received at the point of suspension. Once restarted, this extra amount would increase only by CPI.

I realise that deferring SP later in life means less time to recoup the foregone pension but it may be preferable to a chunky tax bill.

That's my understanding. However important to remember none of this is guaranteed, it can be changed by whim of govt/parliament, eg next year triple lock is suspended, some years ago they replaced RPI with CPI etc.

Thanks for confirming.

You mentioned Mr DQ's primary objection. He is convinced that the government will pull a fast one. 

Audaxer

DairyQueen said:

Thanks for all the contributions. I am glad that I asked the question as I was initially one of those who were under the (mistaken) belief that the premium accrued for deferring would also be increased by triple lock.

Thanks for raising the question @DairyQueen, as I was also under that belief and I assume a lot of other people were. It seems an understandable assumption that by deferring it, the increased portion would become part of the main pension and increase at the same rate when in payment, although we now know that is not the case.

Thrugelmir

DairyQueen said:

zagfles said:

DairyQueen said:

Thanks for all the contributions. I am glad that I asked the question as I was initially one of those who were under the (mistaken) belief that the premium accrued for deferring would also be increased by triple lock.

Am I correct in my assumption that if you suspend SP once in payment, rather than deferring from SPA, that the same formula applies? I think you are allowed to defer from SPA or (once) after SP is payment.

 i.e. Single tier would increase by triple lock from the date of deferral (suspension?) until restarted. This amount would then continue to receive triple lock increases once restarted. Protected amounts would receive CPI increases whilst deferred (suspended?).

Whilst deferred, an 'extra' amount would be earned at the rate of 5.8% of the value received at the point of suspension. Once restarted, this extra amount would increase only by CPI.

I realise that deferring SP later in life means less time to recoup the foregone pension but it may be preferable to a chunky tax bill.

That's my understanding. However important to remember none of this is guaranteed, it can be changed by whim of govt/parliament, eg next year triple lock is suspended, some years ago they replaced RPI with CPI etc.

You mentioned Mr DQ's primary objection. He is convinced that the government will pull a fast one. 

No fast ones needed. The budget proposals for future years. Are a clear indication of what lies in store to recoup the cost of the pandemic.  Doesn't even start to address the cost of the Green Agenda either.