State Pension Deferral is for optimists only ?

tellboy_2

I am shortly 65 and due to receive my State Pension.
I have been invited to defer my pension and receive either a larger weekly pension or a taxable lump sum.
It seems to me that missing your weekly pension for one year and then receiving 10% more if I started a year later would then take 11 years to catch up on the total received.
This is ignoring inflation increases of course.
It only seems worthwhile if you are both extremely healthy and an optimist
Am I missing the point somewhere, why would people do it ?

MrChips

I did the sums for the mother of a friend of mine and in her case the actuarial value of the deferred pension was the highest.

Of course your decision will be based on whether you can afford to put off the payment and whether you think you are of average health or above. Personally, if I could afford to go without for the first year, and thought I was healthy I would do it.

The average 65 year old male should live to be at least 80. Therefore by your logic you would be making a profit for every year lived past 76.

CIS

If you can afford to live without it you can get a nice lump sum or get the increments, with increments you wont get your money back but with the lump sum you may depending on the bank of england rate, its a gamble.

They haven't done thi sout of the goodness of their health, the actuaries must have done the figures and decided that its a safe bet that many people will die without claiming and the payouts will be less than that which would have been paid if the person lived. The lump sum is just the carrot that tempts the donkey.

CIS

deferment gives 10.4%

£100 per week, deferred from 1 year = £5200 deferred
£10.40 weekly gain
£540.80 yearly gained
£5200 lost / £540.80 = approx 9.5 years to recoup

So allowing for the annual updrating, your looking at about 9 years to recoup 1 yrs pension with increments

With lump sum of 4.5% + 2% = 6.5% compounded

£5200 given up in return for approx £5300 lump sum, thats £100 extra for 1 year.

Lump sum would cover the amount the amount lost and give £100, now considering you would probably only defer if you where working, assume you pay @22% band. Thats 22% tax on £5300, or £1166 tax to take straight off or you could defer to the next tax year before receiving it,and pay on whatever your tax band is then.