Delaying State Pension

MK62

Audaxer said:

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.

It would be, but as well as giving up the income from the £8000 fund, don't forget you're also giving up the capital as well, for the rest of your life.

I'm not saying deferring is a bad idea, for some it might be anything but.......just that it's often not as clear cut as it might at first appear.

Audaxer

MK62 said:

Audaxer said:

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.

It would be, but as well as giving up the income from the £8000 fund, don't forget you're also giving up the capital as well, for the rest of your life.

I'm not saying deferring is a bad idea, for some it might be anything but.......just that it's often not as clear cut as it might at first appear.

Yes, but if that £8,000 was invested and you were only drawing down a maximum of 4% each year plus inflation, as is the often quoted safe withdrawal rate, some people would consider it a better deal deferring the SP for one year for 5.8% guaranteed index-linked extra income each year thereafter. That would be similar to buying a small annuity, but with a better rate. I'm not saying everyone would want to do it, but I think it is certainly worth considering.

Johnnyy_Boy

NedS said:

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.

I have a small final salary pension of 4K per annum already being paid and the rest is in a private pension fund that by the end of this financial year will hopefully be near to 600k.

kidmugsy

For what it's worth I'd guess that deferral might appeal because of the ability to (i) avoid 40% tax, and (ii) buy some longevity insurance, and (iii) rebalance your guaranteed and hoped-for income flows.  

You could always compare the cost of the annuity you buy by deferring with the cost of a commercial index-linked annuity.

Anyway, why not try John Kay's calculator?
http://www.johnkay.com/pension/

Stubod

..ta for the link to the calculator, very interesting...seems to suggest for me it is not worth deferring, or at best only for 1 year....

uk1

Johnnyy_Boy said:

I am 67 in a couple on months and have delayed my pension for a year. Currently still working and may continue for another year. A 40% tax payer.

if I carry on working, am I better off not claiming for it and leaving another year ? 

Hi,

Unless things have changed since I deferred and investigated you might consider if you can taking your pension after 6th April as there might be a slight advantage.  I called that at the time “a hot spot” I had this thought several years ago and during the lengthy process when both the DWP and Pensions advisory service didnt agree with me but after some lengthy debates did.  They realised that their own deferment spreadsheets had been wrong and changed them. 

As I say things may be different now but if you want to read the full monty here is a link.  

https://forums.moneysavingexpert.com/discussion/5418521/deferred-pension-hot-spot/p1

All  best with your plans and retirement.

Jeff

nigelbb

uk1 said:

Johnnyy_Boy said:

I am 67 in a couple on months and have delayed my pension for a year. Currently still working and may continue for another year. A 40% tax payer.

if I carry on working, am I better off not claiming for it and leaving another year ? 

Hi,

Unless things have changed since I deferred and investigated you might consider if you can taking your pension after 6th April as there might be a slight advantage.  I called that at the time “a hot spot” I had this thought several years ago and during the lengthy process when both the DWP and Pensions advisory service didnt agree with me but after some lengthy debates did.  They realised that their own deferment spreadsheets had been wrong and changed them. 

As I say things may be different now but if you want to read the full monty here is a link.  

https://forums.moneysavingexpert.com/discussion/5418521/deferred-pension-hot-spot/p1

All  best with your plans and retirement.

Jeff

Things are very different now. Your thread refers to deferring a pre-2016  pension  when the accrual rate was 10.4% for each year deferred rather than the 5.8% available now. There is also no SERPS/SP2 to consider for all those entitled to a pension since April 2016.

uk1

nigelbb said:

uk1 said:

Johnnyy_Boy said:

I am 67 in a couple on months and have delayed my pension for a year. Currently still working and may continue for another year. A 40% tax payer.

if I carry on working, am I better off not claiming for it and leaving another year ? 

Hi,

Unless things have changed since I deferred and investigated you might consider if you can taking your pension after 6th April as there might be a slight advantage.  I called that at the time “a hot spot” I had this thought several years ago and during the lengthy process when both the DWP and Pensions advisory service didnt agree with me but after some lengthy debates did.  They realised that their own deferment spreadsheets had been wrong and changed them. 

As I say things may be different now but if you want to read the full monty here is a link.  

https://forums.moneysavingexpert.com/discussion/5418521/deferred-pension-hot-spot/p1

All  best with your plans and retirement.

Jeff

Things are very different now. Your thread refers to deferring a pre-2016  pension  when the accrual rate was 10.4% for each year deferred rather than the 5.8% available now. There is also no SERPS/SP2 to consider for all those entitled to a pension since April 2016.

Thanks. Yes, I know the rate has changed. 

I don’t want to rerun the thread I highlighted.  What has changed specifically  that renders the choice of month of triggering now incorrect?

Thanks.

Jeff

MK62

Stubod said:

..ta for the link to the calculator, very interesting...seems to suggest for me it is not worth deferring, or at best only for 1 year....

That depends which assumptions you use for the real return on your investments over the "additional years".......of course, we don't actually know what inflation will be, what investment returns will be, or how many "additional years" we have.......so it's all an estimation based on certain assumptions (which may well all turn out to be totally wrong).

Linton

Stubod said:

..ta for the link to the calculator, very interesting...seems to suggest for me it is not worth deferring, or at best only for 1 year....

The calculator is based on whether deferral is worthwhile on a purely financial basis assuming averge life expectancy rather than as insurance with a cost.