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

Silvertabby

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?

Best part of 18 years, and that's taking into account (average) cost of living increases applied to the higher pension.

We looked at this, but decided against it.  Possibly an option for someone who would pay 40% tax before retirement, but as we were both 20% tax payers before and after SPA we couldn't see the benefit of deferring.

On the other hand, my buying 4 years of voluntary Class 3s to take my pension up to the full nSP rate was a really easy decision.

stuhse

Silvertabby said:

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?

Best part of 18 years, and that's taking into account (average) cost of living increases applied to the higher pension.

We looked at this, but decided against it.  On the other hand, my buying 4 years of voluntary Class 3s to take my pension up to the full nSP rate was really easy decision.

So you need to live to 85 to get the £10600 back you are considering giving up.

Linton

Silvertabby said:

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?

Best part of 18 years, and that's taking into account (average) cost of living increases applied to the higher pension.

We looked at this, but decided against it.  Possibly an option for someone who would pay 40% tax before retirement, but as we were both 20% tax payers before and after SPA we couldn't see the benefit of deferring.

On the other hand, my buying 4 years of voluntary Class 3s to take my pension up to the full nSP rate was a really easy decision.

From a bit of spreadsheeting it would seem the 18 years ignores inflation.  With an average inflation of 2.8% over the past 20 years I get about 15 years to breakeven for 1 year's deferral.   So that puts it well under life expectancy.  On that basis perhaps 3-4 years deferral could be justified.

However there are many complicating factors.  For example the calculation ignores any returns from the £10600 you save by not deferring.  Also there is the point that if you defer and die early you wont know you missed out because you will be dead.  However if you die late you will be pleased you made the prudent decision.

Silvertabby

Linton said:

Silvertabby said:

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?

Best part of 18 years, and that's taking into account (average) cost of living increases applied to the higher pension.

We looked at this, but decided against it.  Possibly an option for someone who would pay 40% tax before retirement, but as we were both 20% tax payers before and after SPA we couldn't see the benefit of deferring.

On the other hand, my buying 4 years of voluntary Class 3s to take my pension up to the full nSP rate was a really easy decision.

From a bit of spreadsheeting it would seem the 18 years ignores inflation.  With an average inflation of 2.8% over the past 20 years I get about 15 years to breakeven for 1 year's deferral.   So that puts it well under life expectancy.  On that basis perhaps 3-4 years deferral could be justified.

However there are many complicating factors.  For example the calculation ignores any returns from the £10600 you save by not deferring.  Also there is the point that if you defer and die early you wont know you missed out because you will be dead.  However if you die late you will be pleased you made the prudent decision.

Even a break even point of 15 years wouldn't have changed our minds.  However, appreciate that others may want the security of extra index linked income.  In our cases, all of our pensions are public sector DB and so fully index linked.

Audaxer

Linton said:

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.

I agree and it's probably even better than buying a small annuity, if you can use around £10,600 from savings to effectively pay yourself the equivalent of your State Pension for the year you are deferring. 

Stubod

Hi all, and thanks for the feedback. I have few months before I neeed to make a decision, but it looks like my original plan to defer for 1 year is probably the right one for me. We have sufficient cash, (as well as investments) to pay myself £10.6k for a year and then some, and as stated I think we would struggle to get a better alternative return than deferring....so at present I will stick with plan "A"!!

Universidad

p00hsticks said:

I thtink you really need to live longer than the average life expectancy before you start to see any real financial benefit. 

Yes, this is kind of the reverse of the actuarial reduction argument we often see on the board - the real question is not so much "will I be better/worse off?" as "is this enough to live on?"

Steve_666_

I've looked at this, and tried to crudely model deferment verse saving into a pension and buying an annuity. Deferment looked better than the annuity, even at todays rates. However in the end, I decided to take the pension and put all of it directly into some of the AIC dividend hero funds that are paying a substantial dividend of 4.5%+. The thought is with modest growth, the divy, and gradual drawdown I can do better than the deferment at least into my nineties.

GibbsRule_No3.

I have a strange question regarding deferred SP, just checking really.  I assume the Winter Fuel Payment is linked to birth date age, rather than payment of SP, since two people living in a house one under SP age, one over SP age that person gets the full £500 in 2023? 

Stubod

..I have just stuck the two options into my rather crude budget planning spreadsheet, and it is showing a "break even" point at around 82 years of age...