Due to receive my pension
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They haven't, it's just much less generous than it used to be. Consider longevity risk per ONS for 65 year olds:However, in doing so they have effectively removed any real incentive for deferring in the first place....
Male, to age 86, 21 years, 1 in 4 chance of 95, 1 in 10 chance of 99
Female, to age 89, 24 years, 1 in 4 chance of 96, 1 in 10 chance of 100
While 86 and 89 might be average, a plan of some sort to handle the one in ten chance of 99 or 100 seems sensible. Deferral is an easy and good value for money low hassle way to get extra guaranteed income.
Quoting my post:given that you may have alternatives paying the same or better than deferring
use the calculator at https://www.johnkay.com/pension/ that is unusual because it takes the alternative investments into account. Use the end of your planning horizon or longer as your remaining life expectancy when using the calculator for drawdown planning.
I get these break even numbers of years to defer using normal life expectancy:
If invested to get 3% plus inflation (shares, corporate bonds)
Male aged 72, 15 years to go, defer 1 year 5 months
Female aged 67, 22 years to go, defer 4 years 2 months
If using savings accounts to get 0% plus inflation
Male aged 72, 15 years to go, defer 2 years 8 months
Female aged 67, 22 years to go, defer 6 years 2 months
I get these break even numbers of years to defer using the life expectancy that one person in four will reach:
If invested to get 3% plus inflation (shares, corporate bonds)
Male aged 72, 21 years to go, defer 3 years 9 months
Female aged 67, 29 years to go, defer 6 years 7 months
If using savings accounts to get 0% plus inflation
Male aged 72, 21 years to go, defer 5 years 8 months
Female aged 67, 29 years to go, defer 9 years 8 months
You appear to be considering savings accounts so some deferring appears likely to be sensible if your life expectancy is normal.0 -
But if you have (say) 25 years to live, deferring your pension for a year costs you 4% of your total pension payment over the rest of your life.
5.8% - 4% = less than I get on a Cash ISA.
5.8% - 4% = less than the 6.25% boost I get by contributing £2,880 net to a SIPP.
Maybe in the OP's shoes I'd defer for a year, whereas with the old-style pension five years or so might have been a reasonable deferral. Still, at least deferring is cheap insurance against runaway inflation: better than buying index-linked gilts anyway.
It rather depends on what your objective is. If money left to your beneficiaries is as valuable to you as money you are able to spend during your lifetime then a calculation like this may be appropriate. Though I would question the wisdom of ignoring inflation.
On the other hand if your objective is to maximise your and your spouses steady real income during your lifetimes with little concern for your other beneficiaries the numbers are very different. In your 60s a lump sum used to replace your after-tax SP for a year would generate a guaranteed after-tax inflation linked income of 5.8%. Cash savings cannot provide a long term inflation linked income. An inflation linked annuity would generate about 3%. Drawdown may probably generate a bit more than an annuity but even with variation of income with economic conditions would be very unlikely to provide an average of 5.8%, let alone that amount every year.0 -
Look at regular savers and if you don't need the money after a year then put the £2880 in a SIPP and maybe if you have a partner for them too. That will then be boosted by the 20% top up to £3500 (unless this changed by government) and you will have the annual interest from the regular saver.I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.0
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I hope the OP doesn't mind me raising a related question.
I currently work part-time.
In the full tax year following attainment of SP age, my occupational pensions, earnings, and state pension will take me into the 40% bracket.
So, deferment for me is worth consideration.
I calculate my marginal tax rate on the SP to be c.30%, so by deferring I would forego c £5,900 after tax over a year.
The 5.8% uplift is c. £500, i.e a £400 annual increase at 20% tax.
Rough break-even is then 15 years.
Is it possible to draw the SP from SP age to the end of a tax year, then opt for deferral at the start of the new tax year. I believe this was possible under the old SP, does anyone know if it can be done for the nSP.Alice Holt Forest situated some 4 miles south of Farnham forms the most northerly gateway to the South Downs National Park.0 -
Though I would question the wisdom of ignoring inflation
I'm not really ignoring inflation; I'm assuming that the person could - if he chose - save money that pays interest equal to the CPI inflation rate. If he feared that he couldn't achieve this then deferral looks rosier than otherwise.
I said earlier "at least deferring is cheap insurance against runaway inflation: better than buying index-linked gilts anyway." That's the way that some people should perhaps look at it - if they'd ideally like an investment portfolio of mixed equities and inflation-linked bonds, using pension deferral instead of buying index-linked bonds is probably a fine idea.
None of this probably matters much - I learned long ago that many posters here are incapable of getting their heads round the advantages of having annuity-like income. "Pons asinorum" our school teachers called it.Free the dunston one next time too.0 -
They haven't, it's just much less generous than it used to be.
Yes, we all know it's now less generous - to the point where for many, my opinion is it's simply not worth it. Fair enough, for some it will be, and that's your opinion, but when making the decision at your 65th/66th/67th birthday, you won't know either way.Consider longevity risk per ONS for 65 year olds:
Male, to age 86, 21 years, 1 in 4 chance of 95, 1 in 10 chance of 99
Female, to age 89, 24 years, 1 in 4 chance of 96, 1 in 10 chance of 100
While 86 and 89 might be average, a plan of some sort to handle the one in ten chance of 99 or 100 seems sensible. Deferral is an easy and good value for money low hassle way to get extra guaranteed income.
The fact that 50% might survive to 86, then means 50% will not.
As for 95, again, the fact that you might have a 1 in 4 chance of living that long then means you then have a 3 in 4 chance of dying before that.
Deferral is easy, granted, but good value?....that's a matter of opinion I think.
I get these break even numbers of years to defer using normal life expectancy:
If invested to get 3% plus inflation (shares, corporate bonds)
Male aged 72, 15 years to go, defer 1 year 5 months
Female aged 67, 22 years to go, defer 4 years 2 months
If using savings accounts to get 0% plus inflation
Male aged 72, 15 years to go, defer 2 years 8 months
Female aged 67, 22 years to go, defer 6 years 2 months
Why use a starting age of 72 for males?
Most will have already been in receipt of their state pension for 5+ years - fair enough, you can defer at any time, but the choice seems a little odd.
However, whatever age you choose, it's a gamble as to whether you will lose out by deferring - if you use "average" life expectancy in your decision then just under 50% will lose out, and just under 50% will gain - a small percentage will break even.
I get these break even numbers of years to defer using the life expectancy that one person in four will reach:
If invested to get 3% plus inflation (shares, corporate bonds)
Male aged 72, 21 years to go, defer 3 years 9 months
Female aged 67, 29 years to go, defer 6 years 7 months
If using savings accounts to get 0% plus inflation
Male aged 72, 21 years to go, defer 5 years 8 months
Female aged 67, 29 years to go, defer 9 years 8 months
OK, 1 in 4 might reach that age, but you cannot then ignore the fact that then means 3 in 4 will not.....so while deferring might have been a great choice for the 25% who do live that long (or longer), it might not have quite so great for the 75% who did not (depending on how long they lived of course).
The point is that on your 65th/66th/67th birthday, you simply do not know, and so you are taking a gamble that you might gain if you are one of the 50% who live longer than "average".
Of course, this is assuming that you accept that 86 is the average life expectancy for a male. While your ONS link suggests it is, here's one which seems to suggest otherwise.....
https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/nationallifetablesunitedkingdom/2014to2016
Statistics eh?
Also, I wouldn't put any money in an account paying 0% - nor would you I think
- there are options paying more than that even if you put it all in easy access savings accounts.... 0 -
It rather depends on what your objective is. If money left to your beneficiaries is as valuable to you as money you are able to spend during your lifetime then a calculation like this may be appropriate. Though I would question the wisdom of ignoring inflation.
On the other hand if your objective is to maximise your and your spouses steady real income during your lifetimes with little concern for your other beneficiaries the numbers are very different. In your 60s a lump sum used to replace your after-tax SP for a year would generate a guaranteed after-tax inflation linked income of 5.8%. Cash savings cannot provide a long term inflation linked income. An inflation linked annuity would generate about 3%. Drawdown may probably generate a bit more than an annuity but even with variation of income with economic conditions would be very unlikely to provide an average of 5.8%, let alone that amount every year.
You are getting that 5.8% uplift for a year less though......
Yes, if you defer your SP for a year, you will then get a 5.8% uplift for the rest of your life.
You have no idea how long that is.....and that uplift dies with you.
You could also take the pension for a year and save that.....and then in year 2 you can pay yourself the same annual uplift from the money you saved up in year 1.
This money will still be there if you die before it runs out.
So the issue comes down to how long you can pay yourself the uplift before it runs out, and whether you will outlive the savings - if you do, then you are down on the deal, if not you're up on it (are rather your spouse and/or kids etc are)
It's hard to say exactly how long the savings would last, as it depends what you invest it in, and what the future rate of SP is etc, but even invested in a variety of savings accounts/bonds etc, then all things equal, it should last around 17 years or so.....not that I'm saying that's what I would do with it of course!..;)0 -
More than zero after inflation? Maybe. If you can do that then substitute that after inflation number for zero.I wouldn't put any money in an account paying 0% - nor would you I think - there are options paying more than that even if you put it all in easy access savings accounts....
Part of the issue is longevity insurance. Maybe one in four or one in ten will reach a particular age but some plan is needed if it happens. Deferral is a cheap way if more guaranteed income seems desirable.0 -
Suppose you have reached SP age with an SP of £8K. This would give you a net income of £6400. Now suppose you just happen to have £6400 in an ISA. If you wished to increase your annual income what options do you have? You are a standard rate tax payer now and in the future.
1) Savings interest from an ISA - income say at 2% so £128/year fixed and the same income for your surviving spouse. £6400 remaining for your beneficiaries.
2) Inflation linked annuity at 3% - £192 for you and £96 for your surviving spouse. Nothing for your beneficiaries.
3) ISA'ed investments - inflation linked drawdown at say 3.5% giving you £224 inflation linked for the rest of your life and the same income for your surviving spouse. Probably.
4) Defer SP for 1 year and use the £6400 to replace your net SP in year 1 - guaranteed annual net income of £371, inflation linked, though for 1 less year. Also the same income for your surviving spouse. Nothing for your beneficiaries.
5) Fixed rate annuity at 5% - £320 fixed for you and £160 for your spouse. Nothing for your beneficiaries.
Now assuming you have no deserving beneficiaries and would find the extra guaranteed income more useful than the lump sum which option makes most sense?0
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