Defer State pension. Does anybody.?

njkmr

Hi Guys,
A colleague I work with is nearly 66 but intends carrying on working.
He earns approximately £47k.
He first said to me he was going to defer taking state pension, so I looked on gov website to see the details.
Not sure if I'm reading it correctly hence my post on here today.
If he defers for one year he will get an enhanced pension if he takes it a year later. 
I think it would go up by £12 to £215 per week instead of £203 per week of he draws it now.
So am I right in thinking he loses £11k this year for not taking it and then getting £12 per week extra next year he will take nearly 17 years to get the £11k back.?
If this is correct who on earth thinks this is a good deal.?
I told him he may be better off reducing his hours of work and reducing his salary so that if he draws his pension he can remain under the 40% tax barrier. 
Anybody got any advice I can give him ?
It doesn't seem like a good plan to defer?
Regards
Rob.

la531983

You get an extra percent for every 9 weeks you defer. There is also an option just to claim the Pension up to 11 months late, if he does that he gets everything backdated and then continues at the usual £203 rate (or whatever it is when he claims) 

Does he think if he defers he gets a whole year backdated as well as an enhanced one going forward? It's either/or, also only 11 months deferment is allowed to get the lump sum iirc, which won't be subject to interest.

If he is choosing to defer and get the lump sum I am not entirely sure how this works for tax purposes, I. E. what year the income would fall in, someone else may know. 

xylophone

https://www.which.co.uk/money/pensions-and-retirement/state-pension/deferring-your-state-pension-aksco6V6rnhQ

He could consider claiming his state pension and then increasing his workplace/private pension contributions from salary.

Stubod

..your figures are more or less correct as it takes about 18 years to "break even", so it's a bit of a numbers game.

I am planning to defer my state pension as my other (rather small), private pensions do not have any index linking and we have sufficient savings to defer the SP for one year. I consider this better value as I need to maximise any index linked pension I can get....so each to their own really... 

Albermarle

So am I right in thinking he loses £11k this year for not taking it and then getting £12 per week extra next year he will take nearly 17 years to get the £11k back.?
If this is correct who on earth thinks this is a good deal.?

It is not really a good deal or a bad deal. A 66 year old man will live on average around 17/18 years, so if he is in the 50% who live longer it will work out a good deal. Of course if he dies before then it will be a bad deal, but as he will be dead then he will not care.

Until a few years ago deferring was a much better deal, but now it is more 50:50.

german_keeper

la531983 said:

You get an extra percent for every 9 weeks you defer. There is also an option just to claim the Pension up to 11 months late, if he does that he gets everything backdated and then continues at the usual £203 rate (or whatever it is when he claims) 

Does he think if he defers he gets a whole year backdated as well as an enhanced one going forward? It's either/or, also only 11 months deferment is allowed to get the lump sum iirc, which won't be subject to interest.

If he is choosing to defer and get the lump sum I am not entirely sure how this works for tax purposes, I. E. what year the income would fall in, someone else may know. 

What would be the point of not claiming for 11 months just to get a lump sum? Surely you would just claim it at SPA and stick it in a regular saver if you didn't need the money at the time.

dealyboy

Albermarle said:

So am I right in thinking he loses £11k this year for not taking it and then getting £12 per week extra next year he will take nearly 17 years to get the £11k back.?
If this is correct who on earth thinks this is a good deal.?

It is not really a good deal or a bad deal. A 66 year old man will live on average around 17/18 years, so if he is in the 50% who live longer it will work out a good deal. Of course if he dies before then it will be a bad deal, but as he will be dead then he will not care.

Until a few years ago deferring was a much better deal, but now it is more 50:50.

... a bit like Schrödinger's cat.

la531983

german_keeper said:

la531983 said:

You get an extra percent for every 9 weeks you defer. There is also an option just to claim the Pension up to 11 months late, if he does that he gets everything backdated and then continues at the usual £203 rate (or whatever it is when he claims) 

Does he think if he defers he gets a whole year backdated as well as an enhanced one going forward? It's either/or, also only 11 months deferment is allowed to get the lump sum iirc, which won't be subject to interest.

If he is choosing to defer and get the lump sum I am not entirely sure how this works for tax purposes, I. E. what year the income would fall in, someone else may know. 

What would be the point of not claiming for 11 months just to get a lump sum? Surely you would just claim it at SPA and stick it in a regular saver if you didn't need the money at the time.

I agree. But it's there as an option. Someone was on here the other week talking about doing it.

I have no idea though it doing that defers all the tax paid on it to the next tax year though. If it does maybe that's a consideration for people.

QrizB

njkmr said:

If this is correct who on earth thinks this is a good deal.?

It's a relatively cheap way of buying triple-locked pension income.

His £11k will buy him ~£620 a year of pension income.

The same £11k used to buy an RPI-linked annuity would only buy ~£500 a year.

dealyboy

@Qrizb said:

njkmr said:

If this is correct who on earth thinks this is a good deal.?

It's a relatively cheap way of buying triple-locked pension income.

His £11k will buy him ~£620 a year of pension income.

The same £11k used to buy an RPI-linked annuity would only buy ~£500 a year.

... its not triple locked ... the "extra pension" from deferment increases with CPI (currently).

Linton

njkmr said:

Hi Guys,
A colleague I work with is nearly 66 but intends carrying on working.
He earns approximately £47k.
He first said to me he was going to defer taking state pension, so I looked on gov website to see the details.
Not sure if I'm reading it correctly hence my post on here today.
If he defers for one year he will get an enhanced pension if he takes it a year later. 
I think it would go up by £12 to £215 per week instead of £203 per week of he draws it now.
So am I right in thinking he loses £11k this year for not taking it and then getting £12 per week extra next year he will take nearly 17 years to get the £11k back.?
If this is correct who on earth thinks this is a good deal.?
I told him he may be better off reducing his hours of work and reducing his salary so that if he draws his pension he can remain under the 40% tax barrier. 
Anybody got any advice I can give him ?
It doesn't seem like a good plan to defer?
Regards
Rob.

It is  17 years if you forget the inflation increases, rather less if you dont.  Though against that you have the interest you could have made on the £11K if you did not defer.

However 17 years is not too different to average life expectancy at SPA, so from an overall point of view it is no better than a fair deal, but it is a fair deal.

Two reasons why someone may want to defer taking SP:
1) tax, for example if they are still working after SPA
2) Old age insurance.  Depending on the way you manage your finances in retirement you may find it benefical to have extra guaranteed inflation linked income should you reach extreme old age

However the diffrrence from just deferring one year is pretty small. So I would not say it is a bad idea to defer, but the benefits are marginal.