Delaying State Pension

MK62

Audaxer said:

QrizB said:

nigelbb said:

It's by no means clear cut that deferring is worthwhile now the increase is only 5.8% not the 10.4% uplift it was formerly. Average life expectancy at state pension age is about 20 years but it's going to take almost that long to recoup one year of deferred pension.

Others on this forum have previously recommended deferring for a year or two as a form of longevity insurance, against the risk that you'll outlive your drawdown.

Yes, if you want/need a bit extra income at a rate of 5.8% increasing with inflation each year, it's definitely worth considering as none of my investments guarantee that return every year. 

True......but it's not free......the income you give up for a few years takes a long time to recoup, even with the 5.8% uplift you get for each year you defer.

nigelbb

MK62 said:

Audaxer said:

QrizB said:

nigelbb said:

It's by no means clear cut that deferring is worthwhile now the increase is only 5.8% not the 10.4% uplift it was formerly. Average life expectancy at state pension age is about 20 years but it's going to take almost that long to recoup one year of deferred pension.

Others on this forum have previously recommended deferring for a year or two as a form of longevity insurance, against the risk that you'll outlive your drawdown.

Yes, if you want/need a bit extra income at a rate of 5.8% increasing with inflation each year, it's definitely worth considering as none of my investments guarantee that return every year. 

True......but it's not free......the income you give up for a few years takes a long time to recoup, even with the 5.8% uplift you get for each year you defer.

If you defer for one year it will take you over 17 years just to recoup the lost pension. Average life expectancy at pension age is around 19 years for a male & 21 years for a female.

Audaxer

MK62 said:

Audaxer said:

QrizB said:

nigelbb said:

It's by no means clear cut that deferring is worthwhile now the increase is only 5.8% not the 10.4% uplift it was formerly. Average life expectancy at state pension age is about 20 years but it's going to take almost that long to recoup one year of deferred pension.

Others on this forum have previously recommended deferring for a year or two as a form of longevity insurance, against the risk that you'll outlive your drawdown.

Yes, if you want/need a bit extra income at a rate of 5.8% increasing with inflation each year, it's definitely worth considering as none of my investments guarantee that return every year. 

True......but it's not free......the income you give up for a few years takes a long time to recoup, even with the 5.8% uplift you get for each year you defer.

Yes, but if I was to defer for a year, and say, sell a bond fund or equity income fund I hold, for £8,000 to pay myself the equivalent of the SP after tax for the year I am deferring, that would then give me an extra 5.8% index-linked income for the rest of my life. That is more than the income I would be getting from keeping the bond fund or equity income fund in my portfolio. I therefore I think it's worth considering.

arnoldy

You should take the state pension and up your other pension contributions. Especially if you are male.

If you do the calculations on years left versus increases, deferring is not that compelling. There is no point at all for having a high pension you dont draw for long/at all.

Silvertabby

We considered this, but decided to take our State pensions from when they were due.  In our cases, we pay 20% tax on all of our State pensions and deferring them wouldn't have made any difference.

Mind you, buying 4 years of voluntary Class 3s, which took me up to the full single tier rate, was a no-brainer! 

Stubod

..an interesting post as I was planning to defer my SP for 2 years. On the face of it, and assuming you have "spare cash", it would seem to make more sense financially to "spend spare cash" and defer the SP as the gain offered by deferring would seem to outstrip the money you would make off the savings?....assuming you live long enough to benefit of course! The above post makes me think defering for 1 year rather than 2?

Would be interesting to see some comparisons / calcs?

MK62

Any calculations would, by necessity, only be projections, as we can't know future inflation rates and investment returns.
If you defer SP by withdrawing the equivalent from another pension, then, it becomes a case of whether the deferred SP uplift outweighs the impact of those withdrawals on the other pension.......it's not clear cut, and it's going to be different for everyone (OK, maybe apart from those with very similar circumstances).
In the case of spare cash.......if you think of it in terms of the c2.5-3% interest you could currently earn on the cash in a savings acct vs the 5.8% uplift, then deferring would seem to be a no-brainer, but that would assume the cash was truely spare, and even then, there's still the longevity issue......saying the average survival rate is 20yrs past SP, in reality means half of us are dead before that.

Linton

The value of deferring is to reduce the chance of poverty in extreme old age perhaps when your capped DB pension or fixed rate annuity has lost value because of high inflation or you simply did not plan for much more than an average life span.

If you die early you should not have run out of money or even needed to cut back on planned expenditure and will not be in a position to care about your unused pension pot as you will be dead. If you die late you run the risk of your final years being more miserable than need be.

Some comparisons based on average life span are wrong because they ignore the SPs guaranteed inflation linking and all are irrelevant as you are very unlikely to die at the average age.

MK62

Linton said:

The value of deferring is to reduce the chance of poverty in extreme old age perhaps when your capped DB pension or fixed rate annuity has lost value because of high inflation or you simply did not plan for much more than an average life span.

If you die early you should not have run out of money or even needed to cut back on planned expenditure and will not be in a position to care about your unused pension pot as you will be dead. If you die late you run the risk of your final years being more miserable than need be.

Some comparisons based on average life span are wrong because they ignore the SPs guaranteed inflation linking and all are irrelevant as you are very unlikely to die at the average age.

As I said, it's going to be different for everyone........for some, the cost of deferring could be the depletion of funds their spouse might really have needed to avoid poverty in the event of your death before extreme old age.......it's all a case of balancing the pros and cons based on your own circumstances........

NedS

It's difficult to answer without knowing what other pension provision you have.

Do you have a final salary / DB pension and/or a DC pension? If you have any DB pensions, what is the inflation linking like - capped/uncapped?

If you already have plenty of guaranteed income that is inflation-linked without caps, then deferring the SP will make less sense and you may prefer to take it at SP age and increase your current pension contributions to avoid HR tax.

If, on the other hand, you have very little in the way of guaranteed inflation-linked income, then deferring at a rate of 5.8% may make sense to help ensure a basic level of income into extreme old age.