Decisions to be made

I am much less enthusiastic than jamesd about deferring new-style State Retirement Pensions. Consider your wife. You say she will have a pension of £3.5k - you mean £3.5k per annum I suppose. If her SRP is about £8k p.a. then she will be using almost all of her Personal Allowance against income tax. Deferring an SRP that is untaxed to increase her later income by an amount that will be taxable seems pretty unattractive to me. A better wheeze would probably be to use her little bit of unused Personal Allowance by making annual contributions to, and drawdowns from, say, a SIPP.

On which point: your wife (and perhaps you) would be wise to use her/your last year of twelvemonth earnings to make a maximum contribution to a pension of some sort.

Now, consider yourself. If you die before 75 then as long as you have completed the relevant form, all the undrawn money in your DC pension will be available tax-free to your widow. TAX-FREE! So there is an incentive to drawdown less money from the pension by taking your SRP as soon as possible. If you are so careless as to die after 75, then any money that your widow draws from your surviving DC pension pot will be taxed as income - just as it will be for you before your death.

You have to remember that when you die very little of your SRP will be inherited by your widow, but all your unused DC pension pot can go to her. That seems to me to give a considerable incentive for you not to defer your SRP. After all, if you transfer out of your DB pension you will be giving up the chance of your wife receiving the widow's pension: protecting her position by trying to keep your DC pension pot large seems to me to be a good idea. When you both get old enough to consider using the pot to buy an annuity you can buy a joint-life annuity to protect her.

Yes, but it's only apparently 5.8% p.a. Consider somebody who decided to base his calculation on 20 years more life. He defers one year: he loses 5% of his pension income because he'll be getting it for only 19 years. 5.8% - 5% = only 0.8%. Of course there're still advantages in deferring: (i) the index-linking, and (ii) the longevity insurance (he might live to 100 or beyond).

These are rough calculations but they suggest to me that deferral is probably not a good idea except for considerations such as (i) rebalancing income between husband and wife, (ii) avoiding income tax, or even (iii) avoiding Inheritance Tax. In particular, a deferral that led to a higher income tax burden seems to me to be a dire idea.

By contrast the deal with old-style pensions was terrific: 10.4% instead of 5.8%, and much of the extra pension inheritable by the spouse. That's why we have both deferred, that and the fact that my wife is from an unusually long-lived family.

Silvertabby wrote: »

Mr S is due his State pension next year (mine is too far away to bother chewing over) and we did briefly consider deferring it for a year or two.

However, we've decided not to. He's fit and well, but no-one knows what's around the corner - so we're going to take it and put it into the highest earning safe savings account we can find. Yes, we won't get 5% - but the money will be there if we need it.

Why not put 2880 of it into a new DC pension? He can withdraw from it at will as will be over 55.