Deferring state pension

Stubod

..still thinking about my options regarding this as I am within a few months? My initial thoughts were that (as long as you can fund yourself for a year), it was a no brainer, but with higher interest rates, and the potential tax implications I am starting to re-consider my options. Although 5% index linking ongoing v S&S ISA's that are only delivering 1% pa still make it a tempting option?

Linton

It pure financial terms the 5.8% state pension deferral rate can be seen as fair value, nothing more and nothing less.  However where it could be particularly useful is as insurance against low income in extreme old age.  In my case with significant fixed rate annuities deferring has been an essential part of financial planning.  Though as a pre-2016 retiree the >10.4% increase rate made it almost a no-brainer.  But the 5.8% benefit is still a better deal in your 60's than an inflation linked annuity.

pinnks

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum.  Under the new rules you give up a year of pension in its entirety, do forego £10,600 to get an increase of 5.8% going forward. The numbers just don't pan out in my view.

badmemory

pinnks said:

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum.  Under the new rules you give up a year of pension in its entirety, do forego £10,600 to get an increase of 5.8% going forward. The numbers just don't pan out in my view.

& the years deferred COULD BE paid as a lump sum.

Linton

pinnks said:

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum.  Under the new rules you give up a year of pension in its entirety, do forego £10,600 to get an increase of 5.8% going forward. The numbers just don't pan out in my view.

The lump sum was an option but it made far more sense in my view to take it as increased SP.  ie you got 10.4% extra SP for each year deferred.  In my case having deferred for nearly 5 years I have a 50% uplift to my SP. 

Given you do not know when you are going to die nor what inflation will be, paying 10600 as a lump sum now for over £600/year, guaranteed, fully inflation linked for maybe 30 years should at least be considered.  At  the latest annuity rates the comparison is fairly marginal but until a few years ago  it was a very good deal.  It could be again.

pinnks

As long as you think you will make it to 95+ years of age!  Good luck on that one.

QrizB

pinnks said:

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum..

Shouldn't there be an OR in the middle of that statement, rather than an AND?

Audaxer

pinnks said:

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum.  Under the new rules you give up a year of pension in its entirety, do forego £10,600 to get an increase of 5.8% going forward. The numbers just don't pan out in my view.

One way that some people may consider it worthwhile, is that if you have say £10,600 in savings that you could use to effectively pay yourself the equivalent of the SP for the year you are deferring, it is similar to buying an annuity or investing that money to give you income of 5.8% of the £10,600, plus inflation each year, for the rest of your life.

pinnks

QrizB said:

pinnks said:

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum..

Shouldn't there be an OR in the middle of that statement, rather than an AND?

Yes, my apologies - OR...

pinnks

Audaxer said:

pinnks said:

I disagree.  Under the old rules you got 10+% and the years deferred were paid as a lump sum.  Under the new rules you give up a year of pension in its entirety, do forego £10,600 to get an increase of 5.8% going forward. The numbers just don't pan out in my view.

One way that some people may consider it worthwhile, is that if you have say £10,600 in savings that you could use to effectively pay yourself the equivalent of the SP for the year you are deferring, it is similar to buying an annuity or investing that money to give you income of 5.8% of the £10,600, plus inflation each year, for the rest of your life.

Still not something I would do.  You are still down by £10k, which you need to "recoup" but everyone to their own, I guess.