Deferring State pension....still worth it in the current climate??

Stubod

 Hi all, I am due to get my (full) SP in the next few months. It was always my plan to defer it for 12 months as we have sufficient savings to live off and my rather small private DB pensions have no / limited index linking.

However given the current higher interest rates and the SP increase of 5% it is not looking so attractive.

Just wondering what other peoples thoughts are relating to this?

Many thanks for any feedback...

stuhse

You might be dead in twelve months time and have missed out on 10k that you could have spent having fun (whilst you still can) or at the very least have saved so on your death you can give a chunk to the taxman and look down from above watching your beneficiaries enjoy spending the rest.  Did you watch Elton Johns walk last night ?  You've got 9 years till you're his age (if you get there)   The 10k you chose not to take will take you years to recoup in the slightly higher pension .

Before you retire pay as much as your savings as you legally can into your/a private pension and watch it instantly grow by a minimum of 20% .

af1963

There would effectively be 2 state pension increases by the time you claim it: one because you defer, and one for the inflation uprating.  If you previously thought you would like to take advantage of a larger index-linked portion of secure income, at the cost of missing one year's income at the start, what has changed ?

Beddie

Take the money, there's no point deferring it, unless you are currently a higher rate taxpayer and wont be next year.

badmemory

It certainly isn't as good as it used to be at 10.4%.  But you get all the uprating on top of the deferred amount of 5.8%.  Also you don't need to defer for a whole year as far as I remember just 9 weeks.  I did it at the higher amount & I am fairly sure I would still have done it at the lower amount.  But if your life expectancy is at all affected then it is unlikely to be a good idea.

Blue_Parrot

I had a meeting with our financial advisor years ago and this subject came up. He unhesitatingly said "Take the money. Do Not defer it." No one knows what is going to happen next, and as stuhse has already observed, you could be dead in twelve months. You don't even have to be ill to drop down dead: this almost happened to my husband.

badmemory

FAs almost always say that.  But surely it depends on why you want to do it.  I was still working which meant that every penny of the SP would be taxed & also my retirement income was not going to be enough.  Gullible me believed my ex husband when he said you don't need a pension mine is more than enough for both of us.  Combined with useless solicitor who never mentioned pension sharing.  So my deferring has meant me living a decent life instead of not being able to afford to keep my car.  No brainer really.  So to defer or not to defer is not always that straighforward.

Audaxer

If you have say, £10.6k in savings now earning around 5% interest, that sounds pretty good. However if you were to defer your SP for a year and instead draw the equivalent of the SP from these savings as income for that year, you will be getting an extra 5.8% inflation linked income from the following year for the rest of your life. Therefore in my view deferring is a good option if you need the extra income.

JGB1955

If you defer for a year it's going to take a long time to get that £10,600 back... isn't it?

p00hsticks

JGB1955 said:

If you defer for a year it's going to take a long time to get that £10,600 back... isn't it?

Agreed - my understanding is that the deferment rates aren't related to inflation, but rather are set to ensure that across all claimants, deferment is actuarily neutral.

So (unless you are still working and would pay more tax if not deferring, as with badmemory above) I thtink you really need to live longer than the average life expectancy before you start to see any real financial benefit. 

Linton

Deferring your pension is still the cheapest way of buying guaranteed inflation linked income before your 70's.  You may wish to do this not because of the overall financial benefit but rather as long term insurance.