Deferring post NRD

Pensions_matter_2

I was planning to take my DB pension soon, but wondering about the pros and cons of deferring for 6 months, given current inflationary environment. Inflation increases once in payment are capped at 5% (40% of pension) and 2.5% (remainder). Late retirement factor if I deferred for 6 months (wouldnt want to go longer, as want enough cash savings for rainy day!) is  2.95%. I’m not sure how I work this out - how best to weigh it all up. Any thoughts? I’m probably veering towards just taking it.

Tommyjw

Chucking it in my head i think you're looking at a weighted 3.50% flat increase once in payment. A large point will be if you receive proportionate increase for the first year once in payment (e.g. if retired for 6 months, you get half of the full increase instead), is this something you know and do you know when the annual increase date is?

Also if you are taking a tax-free cash amount, deferring your pension will see an increase in the cash you can take, this may be more important to you than a slightly higher annual pension  once you have received your first annual increase.

Based on the above, one example could be (to make it easy) if your pension is due annual increase on 1 January, if you retire on 1 June you'd have been retired for 6 months so you will get half of the full (3.50%) increase so 1.75% come 1 January on your annual pension. Whereas if you delayed your retirement itself until 1 January, your pension and (roughly) your lump sum will both be 2.95% higher.

Pensions_matter_2

I understand annual increases to pensions in payment are applied July each year, so I’d expect to get pro rata increases based on that, if that makes sense (say, I delayed for a few months)? I wasn’t planning on taking any tax free cash (but I’d need to use up some savings if I deferred).