Should I attempt to drain my DC pension pot before reaching state pension age?

barnstar2077

I have thought about deferring my state pension too, as a way to reduce the need for me to manage my finances later in life.

However, if my understanding is correct, you don't get annual increases on the bit you gain by deferring, which would mean that inflation would eat into it pretty quickly.

Which is a shame, as it would seem a good strategy otherwise. Drain your DC pot, then claim SP at a much higher amount, chill.

guymo

The government web page seems to disagree: "After you claim your State Pension, the extra amount you get because you deferred will usually increase each year based on the Consumer Price Index."

https://www.gov.uk/deferring-state-pension/if-you-reach-state-pension-age-on-or-after-6-april-2016

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81986964#Comment_81986964

You still get increases, but the Triple Lock does not apply.

barnstar2077

https://forums.moneysavingexpert.com/discussion/comment/81987451#Comment_81987451

Ah, I see, well that does help, thank you.

I asked Copilot to compare CPI only to the triple lock over the last 15 years, with a starting value of £100.

Measure	Final Value (£)	Total Growth
Triple lock	£192.70	+92.7%
CPI only	£168.44	+68.4%

Difference created by the triple lock: +£24.26 on every £100

That’s a 14.4% higher pension over the period purely due to the triple‑lock mechanism.

Food for thought if anyone is considering going down that route.

QrizB

Food for thought if anyone is considering going down that route.

Although, with deferral only adding 5.8% per year, most of your SP will still be triple-locked (for as long as the triple lock lasts).

kempiejon

https://www.moneyhelper.org.uk/en/blog/retirement/state-pension-triple-lock

The triple lock applies to most State Pension payments, but there are two exceptions that increase in line with CPI instead:

Additional State Pension – part of the old State Pension that you might get if you reached pension age before 6 April 2016.

Any extra amount you receive if you decided to delay taking your State Pension – known as deferring.

To delay paying income tax for a couple of years whilst emptying DC funds deferring SP and getting 5.8% gives a payback of 15 years, if you take the deferred years as enhanced monthly income. One can also take deferred payments as a lump sum at your prevailing tax rates. It'll take some spreadsheet fettling to sort the sweet spot.

At 67 life expectancy is 88F 85M, of course for those a decade away from SP age there's a lot of finger in the air assumptions. I've long thought the triple lock unstainable, the start age has slipped and will move to 68; so unless the downward trend of life expectancy becomes the norm that number mightn't be sustainable either. I made a plan in my late 30s, pensions, especially the State one, were never part of my planning as I wanted to have retired long before 65.

If I ride into my late 60s I'll consider it more relevant, hopefully though, it'll be money I have to fritter or be benevolent with as I'll have a decade of financial independence, my portfolio covering all my income needs, so SP is bunce.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81987551#Comment_81987551

Coincidentally I looked up some info for another post today.

When Mrs Thatcher delinked the SP from earnings and linked it to RPI , the real value declined from 26% of earnings to 16% in about 25 years. Now with the Triple Lock it is back at around 25%.

Chickereeeee

https://forums.moneysavingexpert.com/discussion/comment/81987824#Comment_81987824

Have you a source/graph for that, please?

QrizB

https://forums.moneysavingexpert.com/discussion/comment/81988581#Comment_81988581

See this post by @hugheskevi :

https://forums.moneysavingexpert.com/discussion/comment/81292290#Comment_81292290

There's a chart there showing RPI vs triple lock since 2010. The outcome is nigh-on identical.

I don't know exactly where they found the chart, but hopefully they'll remember and share the source here.

Pat38493

One further comment to other replies which I broadly agree with. It’s assumed that you are pulling the extra money out of the DC pension for tax management reasons and will put it into ISA or whatever. If you are pulling the money out and will spend it (when you otherwise would have not spent that money), the answers might be different. Likewise if having the money outside the pension will be tempting to spend for your household this could also be a factor.