Why You Should Not Defer Your State Pension
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- Опубліковано 16 чер 2024
- When you get to State Pension age it’s not usually a good idea to defer your State Pension.
Even though your State Pension does increase in deferment, it is likely to take many years for you to recoup the pension you defer.
In some cases, you may be well in to your 90s before you are cumulatively better off by deferring your State Pension.
If you decide not to take your State Pension at State Pension age then the amount of Pension you are due when you do eventually take it will increase. This is providing you defer it for at least nine weeks.
Your State Pension increases by around 1% for every nine weeks you defer. This means you can increase your annual pension by around 5.8% if you defer for a whole year.
As an example, if you were to defer the current State Pension (£203.85 at the time of writing) for a year, your payment would increase to £215.67 per week. An extra £550 per year.
You can defer claiming your State Pension for as long as you like. Be sure not to end up in prison though. You don’t get any increases whilst locked up as your benefits are basically frozen!
Why might you want to defer receiving the State Pension? Well, some people do it because they don’t need the money at that point in their life. They might still be working and paying a higher rate of Income Tax. They therefore believe that the extra income from State Pension will be taxed too much.
Or it could be that some people just want a higher level of State Pension income and are prepared to defer to get it.
If you were to defer your State Pension for just one whole year then remember, you have given up one year of income. At the current full State Pension rate this would be around £9,471.
So, although you would receive a higher State Pension income when you decide to take your pension, you need to factor in when the extra income each year adds up to the year you have given up.
As an example, if a 66-year-old was to defer their State Pension for one year and the State Pension was to increase by inflation at 3% per year then it would take approximately until age 91 until you were better off.
Even with the increase in deferment, it still takes around 25 years to recoup the year you have given up.
But what about if you were to pay tax on taking the State Pension at normal State Pension age?
Well for a basic rate taxpayer (20%) using the same scenario above it takes 21 years to recoup the pension given up assuming you don’t pay any tax on your State Pension when you do eventually take it.
For a higher rate taxpayer (40%) it takes 17 years.
So already a compelling case not to defer your State Pension unless you believe you are going to live way past normal life expectancy.
There is, however, a tactic you could use to get the best of both worlds. As in receiving your State Pension at State Pension age but not pay any tax on it if you are still working.
The way to do this is to contribute your State Pension into a personal or workplace pension. You could do this even if you were only planning to work one more year and therefore were originally deciding whether to defer your State Pension.
Taking your State Pension at normal pension age and investing it into a personal or workplace pension means you effectively get all the tax back you would have paid on receiving the pension. Even if you decided to make an immediate withdrawal from the personal or workplace pension the following year and paid tax on part of the withdrawal you would still have around £17,805 in collective payments over the two years. This compares to just £10,020 were you to defer your State Pension a year.
You can contribute up to 100% of gross earnings into a personal or workplace pension or the available Annual Allowance whichever is lower. Even if you do not have enough allowance available you may have scope to gift money to your partner’s pension or even a child’s pension.
Quite frankly you are likely to spend less as you get older so the more money you receive now the more you can do in the early part of your retirement. The time when you will hopefully be your healthiest and fittest.
#statepension #statepensiondeferral #statepensionage
Once you get to pension age. Basically it's not long now 😮😮😮 get what your owed
^agreed
Watt if we dont live that long
Well Done- Simple and easy to understand - one of the best I’ve listened too. Thx
Thanks for the feedback Ron, really appreciate that.
Very good, thank you for keeping it simple and easily understandable.
Thank you for the feedback
never delay the state pension, when you die you can not pass it on. take the state pension and save on accessing your sipp.. sipp can be passed on
Great comment Emily
Yes your right Emily, I have looked into this matter very seriously. It used to be if you deferred your state pension say for one year you could get it as a lump sum the following year less your tax, but also with interest, that stopped, so what happens is, that years pension you do not get, its pays a little extra each month out of the deferred amount, it can take up to 17 - 20 years to get it back!! Im sure your aware of this but I'm just letting others know how it works. Absolutely take your SP when it's due.
Thx for the information. Should DB scheme holders also invest in SIPP since the latter can be passed on?
@@user-gz2os8mi9hIf you mean putting the State Pension in s SIPP, then probably so.
Excellent advice. Many thanks!
Thanks for the feedback Gavin.
Thanks, clearly presented information.
Thanks for the feedback Simon.
Defer when exactly since state pension age is only going up? Sad part is that people in UK do not even think to protest about it.
That's the problem in the UK, we are all guilty of moaning about the way things are going here, yet we don't protest enough. I don't mean burn shops etc like they did in France, but we do not lobby our MPs hard enough, I suppose deep down we think what's the point, because it only falls on deaf ears. Who really cares about Joe blogs, as we know we are only a number, we are expected to be excited about rise in state pension, but with the cost of living its only pennies, if the government spent our taxes properly we wouldn't be in this situation bad accountants and too many bonuses.
@@user-bb2oe2hw8i I would like to think that when people (like you have said) feel deep down there is no point of peaceful protesting, then this is exactly the moment when (unfortunately as I do not support these methods easily) it is time to think of the more French style protesting. This is simply out of choice. Yet that kind of protesting does not take place even after recent speculation to increase state pension age to a mad number of 71yo.
I think one of the reasons for complacency among people in UK when it comes to retirement subject are years of media propaganda that meant to spark tensions between generations. Young do not like old, old do not like young etc. So now when young people hear state pension age could be raised to 71, they are actually happy about it, these boomers get what they deserve kind of thinking. But young people forget that rising retirement age is also punishing their future selves. It’s sad.
@@pistopitpit yes what you have just said is right about the young and old. The government over the years have wasted tax payers money, they pretend to look after us, its all just words, actually iv heard it all before. I'm very disappointed in myself for not protesting stronger about all the things I feel that are important to the old and young, imagine having to work through to your 70s! I'm retired, but I do feel for the next generation, also the UK really has no NHS, how did it get so bad, thousands paid out on agency staff, if the pay and conditions were better we wouldn't lose our trained staff, its all about bad management too. My brother in law was a trouble shooter he was called into the NHS years back to try and see how it could be managed better, no.one listened to his advise, he said in a few more years it will be a shambles, and here we are!
Nice video, very informative. I have a question. I am 65, Thinking of carrying on working after 66. My salary is just below 40% tax threshold. With my buy to let income it takes it over that. If I claim state pension next year it takes it even more over that threshold. I have a defined contributions pension scheme at work to which my employer pays 3%. If I make contributions to a SIPP next year, can I claim tax relief at 40% for both pensions?
Your assumption is defer for one full year so start taking at 67.
Your calculation is wrong. We exclude the tax implications in this assumption. Here's my understanding. 203.85 the increase will be 5.8% of 203.85. That's £11.82. Assuming it remains constant at 203.85 for that year lose 203.85 multiplied by 52 or 10600, the new increased rate will be taken from then on. Break even is loss of the 1 year divided by extra i.e. 10600 /11.80 weeks 52*203.85/11.8/52 year. 17.2 years.( So it's simply weekly amount / increase).
This is a simplified situation for one thing its going up to 221.2 from April 2024, so the length of time increases to about 18.3 years to break even. Anything after is a bonus. Extra 11.82 weekly or £685 year (approximately). Note this is easiest and you don't need even to know what the pension is. 1 pc for 9 weeks and assuming(as originally stated) no increase over the deferral period. That equivalent 1/9 % per week. Now take its reciprocal. Expressed as fraction 100 times 9 weeks. 900 weeks or 900 /52 year.😮
Well done for pointing this out. Totally misleading advice from a financial advisor. Typical
It takes 17.25 years, ie 17 years and 3 months, to break even.
Hi please I m scared to go on web site to check my eyes are not good
My NI no where near 10k
And most of time I was sick due to an accident now I m getting pip and universal credit what would I get when I’m 65 I m now 57 please help
I'm not really following the maths on this. You say deferring for one year increases the state pension by 5.8%, yet on the chart you show the pension rate at age 70 as £10,660 if not deferred, but as £10,949 at age 70 if deferred for one year . Shouldn't the deferred figure be more like £11,279? Whilst I totally agree that deferring the stars pension is a bad idea, I had always understood that the break even period was more like 17 years or less depending on inflation, ie. by about age 83 you would have recouped the one years pension you had forfeited.
I'll explain why 1% increase for 9 weeks deferment is equivalent to (about) 5.8 APR. There's 52 weeks in a year. Therefore, 52 divided by 9 percentage increase if it was over 52 weeks. 9 times 5 is 45 remainder 7; 9 times 7 equals 63 remainder 7 (again) so it's recurring 7. So the number is 5.7... recurring rounding to 5.8.
Please look at my post in the comments. I believe his charts and tables are incorrect!
Why do these presentations assume you're in the same country without being explicit?
Thanks for the information but I think you could have worded it a little better. It came across as sounding like pension recycling. You could have said, as long as you are still working, supplement the amount of state pension you receive as income to allow your working income to fund a personal pension. That would have made more sense. But yes, a good idea not to defer the state pension, who knows what will happen in the future.
Thanks for the feedback.
Pay the State Pension into a Private Pension, then watch a Maxwell character pitch up to spend it all for you!
Is that not recycling of the lumpsum?
If I understand correctly paying the state pension into a DC scheme is only beneficial based on capital growth. Taxed at source, tax relief into the fund and then taxed at draw down. So if the fund fails to grow or even loses money there is little benefit. 🤓
There is a net tax benefit due to the fact you 25% tax free on drawdown. With the right investment strategy over the long term you should expect growth.
Interesting. What about if you haven’t contributed enough years to the state pension and are unable to back pay any more? Should you defer in order to contribute for the full 35 years so you can then eventually draw a full pension rather than a reduced one?
Good question but I don't believe this is how it works.
@@carlrobertsifa Thanks for the reply, guess I need to do the maths, taking into account inflation. I don’t particularly want to be drawing a state pension that is £20 or £30 less per week than the standard rate for all of my retirement life.
You can 'top up' missing years by paying voluntary contributions at the moment. This currently costs around £800 for each missing year but the resulting increase in your pension means you get your money back in around 3 years. If you can't afford to pay voluntary contributions then you should check if you are entitled to any NI credits. Martin Lewis has done some videos and articles on this. As far as I am aware once you reach state pension age you stop paying NI, even if you are still working, so working beyond state pension age will not actually increase the number of qualifying years you have already got. You might have to check this with DWP.
crap take all you can there are no pockets in shrouds
That's what he is actually saying.
That's a very old saying, but very true
Well, pockets or not you could still have some money inside your coffin. Not much room in there but enough to have some stash :)