You’ve worked hard all your life, paid your National Insurance on time, and now that you’ve reached State Pension age, we are suggesting that you might want to delay it.
Have we taken leave of our senses?
No! There are some excellent reasons why you might consider delaying your State Pension.
But, first, because it’s a rarely used option, let’s explain more about how it works.
Delaying your State Pension, all you need to know
You can choose to delay (also known as defer) taking your State Pension when you get within four months of your State Pension Age (SPA).
By the way, if you don’t know it, you can find out your SPA by clicking here.
If you reach your SPA after 6th April 2016 and decide not to claim your State Pension, it will be increased by 1% for every nine weeks (the minimum period you can opt to delay for); that’s equivalent to 5.8% for every 12 month period you defer.
If your State Pension would be £159.55 a week (the full new State Pension). This works out as £8,296.60 a year.
By deferring for one year, you’ll get an extra £479 a year. (Source: www.gov.uk/deferring-state-pension/what-you-get)
The extra income will be added to your State Pension when you decide to claim it. There is no longer an option to have it paid as a lump sum.
If you decide that you want to delay taking your State Pension, you don’t need to do anything. When the time comes to claim it you can do so in one of four ways:
There are four ways to claim:
- Online, by clicking here
- If you live in the UK, download the State Pension claim form, by clicking here
- If you live overseas, by clicking here
- By calling the State Pension claim line on 0800 731 7898
Should you defer your State Pension?
Waiting to take your pension effectively provides you with a guaranteed return of 5.8%, which in the current climate looks very attractive.
But there’s a lot more to consider than that.
The first question to ask yourself is whether you can afford to delay your State Pension; if you can, then you can move to the next stage of the decision-making process. If you need the income it will provide, then taking it is your only option.
Assuming delaying is a possibility, you should then consider the most appropriate sources of income to meet your needs. For example, taking an income from Individual Savings Accounts (ISAs) is very tax-efficient, while leaving money in pensions might have Inheritance Tax (IHT) benefits.
Your life expectancy is probably the most crucial factor. After all, you’ve got to be alive (or your spouse has) if you are to benefit from the higher payments. Delaying your State Pension has a breakeven point; where you receive more in higher payments, than you gave up by delaying. For example, delay for two years and you probably need to live until your mid 80s for it to be profitable.
How likely is it that you will live past the breakeven point?
There’s no way of knowing for certain. You can use a longevity calculator, such as the one below, to estimate your life expectancy. However, this is only a guide and much depends on your own individual circumstances.
What’s the right answer?
It’s impossible to say until we know more about your circumstances.
The most important thing though is to give it careful thought and have a plan. It’s probably natural to think: “I’m retiring, I need to take my pensions.” But, there may be more tax-efficient options to achieve your objectives, which will allow you to leave more capital to your loved ones when you die.
That’s where financial planning comes into its own.
Once we understand what you want to do in retirement, and how much that will cost, we can assess your assets and recommend how best to provide the income you need. There will undoubtedly be an optimum position, it’s just a case of finding it!
That’s what we do, week in, week out, for our clients.
If you would like to discuss your options, please call us on 0113 262 1242, we’d love to hear from you.