Deferred State Pension

System

This discussion was created from comments split from: deferred state pension.

1957DfurdPensionist

I am here to try to share my experience to all those who are looking at soon claiming their State Pension and in particular those who may have already reached SP age and are deferring or considering it.

This is a very long post so if you want to skip all the background commentary about my experiences in trying to optimise a state pension claim, and take a look at specific nmbered 10 outstanding questions at the end, please feel free.

I have read the MSE Guide on deferring and many of the other comments on MSE regarding how it might work, but I have been astounded several times during phonecalls with DWP Newcastle with how little is made public by way of example calculations.  In the nicest possible way, I still do not believe anything close to the full story is laid out here on MSE in the guide, or in various knowledgeable contributors' comments in the forum.

My guess is that the system is ridden with errors because of successive governments' messings about with contracting out and then the switch to the New State Pension, the ridiculousness of when 35 qualifying years (was it not 30 years once upon a time? is not what it seems, and the Triple Lock may not be what it seems either to those of us who have deferred, been contracted out, and paid for VCs.

Where do I start?

First, I recommend that before you reach State Pension age, you get all possible questions answered and confirmed in writing by plaguing DWP, Future Pensions et al before they divide to conquer and shove you into a "older than SPA" queue whose agents are encouraged, rather than to answer technical questions about calculation of your deferral options, to tell you "we are going round in circles so my manager has indicated I will have to terminate the call."

As you may already have guessed, when I reached age 66 in 2023, I made the mistake of still being employed and not having bothered to establish exactly what my SP entitlement would be if I stopped working.  To be honest, from about 2015 onward, with the new state pension confusion beginning to surface, and DWP's state pension forecasts soon proving not to be worth the screentime to even look at, I pretty much gave up for a while, and instead concentrated on trying to understand what my various collected bits of private pensions might look like.

As it turns out, I should have started before age 66 to look at ways to increase my contracted out depressed SP entitlement by maximising it by paying VC's.  Not everyone can afford that so I still count myself luckier than most of the hoi polloi.  I've done that now and even managed to talk HMRC into making some of them retrospectively Class2, but I doubt most my age would have refused the first answers and just coughed up £824 for each year without a fight (that is, if they could even afford to lay out cash in £824 dollops).  I paid full price then argued a rebate.

Sometime in the last two or three years, I realised that my 35yrs+ of qualifying contributions coupled with being contracted out for most of our working lives (like huge numbers or even the majority of us my age), put me down a rabbit hole with some weird and wonderful transition status dictating my future pension level - something between old state pension and new.  Exactly how they calculated it is not something I can check with my overly mathematical brain.  DWP doesn't cater for claimants with that sort of brain.  In DWP's parlance, that's due to the claimants' questions going round in circles when DWP front line staff say they are not trained/willing/authorised to discuss calculations.  No no no - them confirming calculations would be them giving advice.  God save them if they get caught doing that!  Perhaps one in ten of their telephone agents have the gumption to engage as best they can but still can't confirm any numbers.  You can spend ages on the phone, but if you receive any new confirmation in writing afterwards, then a miracle has occurred.

So, with the background to my experience set by the foregoing description, i.e. it has been much like being constantly bogged down with no clear result in site, a few yards forward, and a few back, with the battle lines barely altered since 2023, I now try to apply myself to finding out exactly how much I am going to be paid before they actually get around to processing my claim and paying it.   Can you believe that my claim is in, but I still don't know the answers?

Yes, having paid earlier in 2024 for seven years VC's - the apparently 'sensible to pay' years given my very confusing old SP v. new SP transition status, I finally decided over 3½ months ago that if I stopped work at the end of the 2024 (which I did), that I must phone the claim line early (wary of the awful backlogs) to put some sort of stake in the ground.  It looked to me to be the only way it to actually get some answers out of them.  But No.  I still don't have the answers.  I have called to ask several times, but each time I seem to learn not one extra jot about the figures in my case, but instead a little extra info, not published anywhere useful like on direct.gov.uk, of course, which usually adds to further upset of my previous iterative ideas of how the deferral calculation will actually work.

Outstanding questions for me now are currently along these lines:

I had 36 years full NI payments but in 2023/24, according to the final online forecast before I was 66 (you can't get one after you reach SPA), the new state pension would only have been something less than £160pw.  So I eventually paid for seven years VC's to increase my 2023/24 anticipated pension to about £199pw although that enhancement has never been confirmed in writing.

1. Now, that figure of £199pw.  In my case I know where it should reightfully appear is it is an agreed improved 2023/24 pension entitlement after I paid the VC's but before the 2024 Triple Lock, and before any deferral increases.   But can anyone explain why if I speak with any telephone agent at DWP now, i.e. 9 months post 2024 Triple Lock, and only 3 months to go before the known 2025 Triple Lock, they can see and will quote what they call an estimate of my New State Pension of £199pw.  It's just an estimate they say.  Based on what exactly??

2. I have told them multiple times in phonecalls and emails that I understood and was banking on each VC year purchasing an extra 1/35th i.e. £5.82 pw at 2023/24 rates of new state pension.   Is that correct?  And so at 2024/25 rates after 2024's Triple Lock, I should be up around £218pw even before we talk about deferral increases?  Is that correct?

3. I still have more gaps, but it seems I just have to take DWP/HMRC word for it , like it or lump it, that paying for any of those wouldn't have made any further difference.  They couldn't say why that is the case any more than they still haven't confirmed that at 2023/24 rates, I made myself 7 x £5.82pw better off.  So why can't I pay for at least one more year to match the New State Pension maximum?  And why if some luckier types apparently have a transitional status that somehow puts them over the maximum New State Pension can't I pay for even more gaps and put myself well over the maximum also??

4. Next - the claims backlog - I am told DWP have at least a 4 month backlog.  In practice how do they compensate for that?  If a claimant does not know about it, and is strapped for cash, how do they survive for 4 months plus?

5. Now to the deferral options - 5.8% for a year, or 1% extra for each whole 9 weeks but nothing extra for part of a 9 weeks?  Can't their computers deal with daily percentages?  That's a further piece of nonsense.  So we need to choose our 9 week multiples carefully?  1% doesn't sound much, but with the power of compounding over the years of pension payment, missing an extra 1% for the sake of a few days in choosing an optimal deferral period ... ?  Why can't they help you with that?

6. Then through general reading (not just MSE) today I have picked up that the deferral increase percentages may not be percentages for life at all.  It seems they might attract quite separate and much poorer inflation protection than Triple Lock.  Is that correct?  And so if the deferred pension start date is before April the deferral increase will be less than it would be for a post April start?

7. Then there is the question of a lump sum option of up to 12 months if you have deferred for at least 12 months.  If you defer exactly one year and take exactly 12 months lump sum, then it is treated merely as a a lump sum late payment i.e. no deferral increase arises thereafter?  I.e. you have just lent the government a year's pension for zero interest? Am I correct?

8. And if you defer longer than a year, the maximum you can get as a lump sum is 12 months worth calculated as the 12 months ending on the date you actually claim, not on the date you might eventually first get paid?   Correct?

9. But you do not have to take a full 12 months lump sum (always backdated from claim date).  You can opt for less which will leave a period between your SP age and the start of the lump sum backdated payment.  That period can earn a deferral increase.  So for example, if you choose to start your pension at age 67y 4m instead of age 66, then you could earn 1% for each full 9 weeks from your 66th birthday up to the start of your chosen backdate period.  In the example case you might choose exactly 9 weeks from age 66, but before a backdate of just 43 weeks, and that's mean you've put in your claim on your 67th birthday.  You've cleverly done that with a requested payment start date that has second guessed the 4 month (18 weeks?) backlog so you can earn some more deferral increase for the backlog!  Or can you?  In my optimistic example, your total earned deferral increase might be for no less than 3 periods of 9 weeks (9 weeks prior to the backdate plus 18 weeks backlog before payment starts after the claim date).  Now is that correct?  It is broadly what I have been told over the telephone by one of the more helpful sorts, but it sounds a bit weird, doesn't it?

10. I think this is more than enough for a first post, but I would be particularly interested if there are experts out there who could engage with this sorry saga which is surely totally typical of the hassle hundreds or perhaps thousands of new late baby boomer pension claimants face each month?

QrizB

1957DfurdPensionist said:

In case you haven't bothered to read the MSE Deferred Pensions Guide, there is a link at the end that brings readers directly here to this thread.

Your post does not include any discussion of the MSE guide, though.

The specific post was:

MSE_Clare said:

We've just published a new guide on 'Should you defer taking my state pension?'
We'd love to know your thoughts and feedback.

You have provided no thoughts or feedback on the MSE guide. Rather, you've written a lengthy post that's specific to your personal circumstances.

I agree with @Stubod that you would have been better starting a separate thread. I've reported it to the mods and hopefully it will be split off by them in due course.

1957DfurdPensionist

Oh dear - my lengthy post is certainly not specific to my personal circumstances any more than it is the situation I have experienced so far that I have absolutely no doubt hundreds or thousands of potential new pensionists continue to find themselves faced with having gone through the crazy contracted out decades.  If you are not one of those and if you have not had a mixed fortune career with unexpected breaks yielding multiple NI gap years like most now reaching pension age, then you may not recognise that what I have described is rather interesting experience which cannot easily be pre-researched.  Perhaps you are one of thousands have just accepted what HMRC and DWP told you you were entitled to.

I am certainly not one of those.  I guestion everything that comes out of there since I read about the total mess which was HMRC'scontracted out records and the race for trustees of pension schemes (if they hadn't been wound up years ago) to double chek their own records of GMP against those held by HMRC before HMRC closed down all further enquiries on the subject in 2018 I believe.

Whilst it can be of some initial guidance, the MSE Deferred Pension Guide goes only so far.   I saw no clear mention of how the Triple Lock does not apply to deferral increases.  I saw no mention of exactly how taking a lump sum of up to 12 months worth of deferral affects the deferral calculation, for example splitting the deferral period into poentially three parts - part which attracts a deferral increase before the lump sum period, the backdated lump sum period itself which attracts no increase (and is thus an interest free loan to the government), and then the part after the lump sum period up to the chosen pension start date which does earn some further increase.  I see no mention in the guides of the four month backlog on new SP claims, nor how deferrals might be exacerbating the backlog just like the sudden awareness of need to exploit VC's caused a massive backlog a few of years ago.

I see no interesting example claims in the guide.  Elsewhere in respect of VC's MSE seems not to have explored further exactly why many potential claimants still have many gap years they could pay for which for some reason will make no difference to their pension entitlements.  Yes MSE did discover that the phenomenon existed, but didn't find out exactly why.  I still don't know, but I have a feeling it has something to do with the weird and wonderful old SP/new SP transition comparison calculation which I am aware of but do not fully understand either.

I also read nothing in the MSE deferred SP guide that warned that once you are past SPa, the online information you can get about your expected pension entitlement dries up completely.  All you can see is your past NI record, but of course, after SPa unless you fill in past gaps, your NI record does not go beyond your SP retirement year even if you keep working.  So optimising VC's is a crucial part of assessing what a deferred pension will look like - that's because apart from those VC's, the deferral itself is the only other thing that hopefully will improve what you finally receive.  The official gov.uk published 1% for 9 weeks or 5.8% for each year of deferral, without same sentence warning that it is not inflation protected by Triple Lock is badly misleading, but no-one has criticised that, have they?

So again, how exactly is what I have questioned and written about tied only to my specific case?  That's ponderous nonsense.  What I have written about can affect all new claimants, and that is why I bothered to come here and write it.  All new SP claimants need much more public information and examples than is fed to us on direct.gov.uk and than can be found so far on MSE despite the best attempts of those who try to open our eyes to potential missed opportunities and latent government errors..

eastcorkram

1957DfurdPensionist said:

QrizB said:

1957DfurdPensionist said:

In case you haven't bothered to read the MSE Deferred Pensions Guide, there is a link at the end that brings readers directly here to this thread.

Your post does not include any discussion of the MSE guide, though.

The specific post was:

MSE_Clare said:

We've just published a new guide on 'Should you defer taking my state pension?'
We'd love to know your thoughts and feedback

You have provided no thoughts or feedback on the MSE guide. Rather, you've written a lengthy post that's specific to your personal circumstances.

I agree with @Stubod that you would have been better starting a separate thread. I've reported it to the mods and hopefully it will be split off by them in due course.

Dear QrizB
As a somewhat pertinent aside, may I just point out that you appear to have misquoted MSE_Clare. What she actually wrote (at least in the 14 May 2024 version I read earlier today and you linked to) was 

Have your say in our forum!

We'd love to know your thoughts and experiences of deferring your state pension. Let us know if {sic} our Forum thread.

(my bold)

What have I done wrong exactly other than get your and StuBod's goat? I have not been so crass or superior as to report your contributions as unwarranted and misplaced.

What's point four all about? Are you saying that everyone who applies for state pension, then has to wait four months before it goes into payment? That's definitely not correct . 

1957DfurdPensionist

I am sure if you never purchased VC's and never deferred your claim and never question what DWP tells you then you might get through the system a lot faster.  But the likes of us who question the deal we are buying into for the next 20 years or so are probably responsible for the long backlogs, because the agents we talk to are not able or allowed to go into details about the numbers.

p00hsticks

I'll make a stab at answering (or at least commenting on) some of these 

I. As you've already realised, once you go past State Pension age (SPA) you (and people  in DWP) no longer have access to a State Pension forecast for you and there is no equivalent to the Future Pension Service who can provide info. As I underatnd it, once you start deferring your state pension then there is no ongoing calculation of what you might get going on in the background. There will need to be a back-room calculation  done at the point you start to claim it which will depend on whether you opt for a lump sum or not - hence any quoted amount is approximate. 

2. Assuming you purchased post-2016 years and had not already reached the maximum, yes (with the proviso that as you cannot exceed the maximum the last year purchased can increase it by anything from a penny to the full 1/35th amount)

3. There is a lot of knowledge on these boards - people here have been explaining the transitional rules and providing advice on which years will and won't boost your State Pension ever since the new State Pension (nSP) was introduced back in 2016. If you still have the details from your last Pension Forecast prior to reaching SPA and post them here people will be able to comment further 
In general, people of your age who have over the maximum amount are often the losers, not the luckier ones. It means that when the nSP was introduced, due to paying into SERPS or the S2P,  their calculated 'starting amount'  under transitional rules already exceeded the nSP maximum amount and so they'll have a 'protected payment'. They've therefore paid in additional NI prior to 2016 to get to these amounts and (if working) wil lhave been continuing to pay NI since then for no further boost in their state pension... 

4. My understanding is that it's not a straightforward 'push a button' action to put a State Pension into payment when you decide to claim, especially if previously deferred.  The initial invitations to claim go out around four months prior to a person reaching SPA to allow time for it to be set up - I don't see why deferment would me any quicker. One would hope that anyone likely to be strapped for cash would have submitted their claim when initially invited prior to reaching SPA. 

5. The vast majority of DWP benefits deal in weeks not days, and the majority of their computer systems date from the 80's, so don't expect too much. It's probably done with pen and paper.... I've no idea how the percentage rate and periods were decided but deferral rates were much more generous under the old system and I think are designed to be actuarily neutral now

6. You may be thinking about the aforementioned 'protected payments' for those who have over the nSP maximum, which I don't think increases by the triple lock amount.

I've no more time at present but may come back to the final points later....

molerat

p00hsticks said:

6. You may be thinking about the aforementioned 'protected payments' for those who have over the nSP maximum, which I don't think increases by the triple lock amount.

The deferment increase is also only CPI linked

Midlander59

You can never assume you will get the full amount without a specific enquiry. I have made VC for some years post 2016 to increase my entitlement to the maximum. No point in paying pre 2016 as the uplift was smaller for me. 

I’m not deferring at all as the payback is pretty long. 

1957DfurdPensionist

Dear All - thank you especially to @p00hsticks for engaging with my questions and observations.  I posted further information but it got caught in MSE's over-zealous suspicious post filters with a message: Whoops, your thread has been caught in on our suspicious thread filters! If you think this is a mistake, please email ForumTeam@MoneySavingExpert.com with details of the thread
So, I've done that and hopefully they will publish my post tomorrow.

Silvertabby

My (very brief) thoughts.

Buying voluntary NI.
I bought 4 years of (post 2016) Voluntary Class 3s, which took me up to the full nSP rate.  Even paying the higher rate Class 3s was still a bargain - will break even in less than 4 years, after which it's all profit.

Deferment.
Would only have considered that had I still been working, and the State pension would have been taxed at 40%.  But I wasn't, so I didn't.  The break even point of 18 years just wasn't worth it.