30 September 2017

Should I Defer Taking my State Pension?

This is my second blog with this title - the first being in 2012. But things have changed so it's time for an update...

The trigger for asking the question is that the government allows you to say "I don't want to take my State Pension yet". If you do that, then they will pay your a higher pension in due course. So, if you are still working when you reach your State Pension Age, or simply don't need the extra income, should you defer it like that?

If you reached your State Pension age before April 2016, then there was a good deal on the table - every 5 weeks that you deferred gave you an additional 1% on your State Pension. Even so, my comment back in 2012 was that it would probably not be a good thing for many people.

Now it will take you 9 weeks to earn that extra 1% (equivalent to 5.8% for a year), and it is even less likely that it will be a good thing to defer.
 
It all comes down to the fact that you will have missed out on X years of income. I previously calculated that it would take between 15 and 25 years to catch up on the basis of the total income received (depending on how long you deferred). Now it's even longer than that, and some people may never catch up - in other words you will have voluntarily given up that income for ever.
 
There will always be specific situations that are different - which is why this blog can never provide financial advice. For example, there may be some reason why the Income Tax which results from the extra income is particularly unwelcome.

But the general case will remain the same ... for most people, deferring the start of your State Pension doesn't make sense.

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