| Topic: | Deferring your state pension | |
| Posted by: | Bernard Allen | |
| Date/Time: | 12/05/15 16:13:00 |
This may be helpful, Sorry about the cut and paste Just basic info in plain English Deferring your state pension You can choose to take extra state pension or a cash lump sum Although you can't start taking your state pension before state pension age (62.5 for women and age 65 for men in 2015/16), you can delay when you start receiving it. Doing so could result in you receiving a higher weekly state pension or even a lump sum payment. You can defer your pension for as long as you want, but you must defer the whole thing – basic state pension plus any additional state pension you've built up. You can start deferring your pension even if you've already started drawing it, in order to earn extra money from it. This guide explains how it works and whether or not you'll actually be any better off. Deferring your state pension - the basics If you want to try and boost your state pension by delaying when you receive it, you'll have to put off claiming it for at least five weeks. For every five weeks you defer, you'll get a pension increase of 1%. This works out at 10.4% for every full year. So if you hit state pension age in 2015 and just received the basic state pension of £115.95 a week, over a year you'd earn £6,029.40. Deferring for a year will see you increase your annual state pension to £6,656.46, or £128.01 a week, an increase of £627 a year. The extra amount will be taxed in the same way as the rest of your state pension. For people qualifying for the state pension after April 2016, the rate of annual increase will fall from 10.4% to 5.8%, making the offer less attractive. These people will have to live for around 19 years to benefit from the decision to defer for one year, compared to an extra 10 years at the current rate of interest. Taking your pension as a lump sum You can delay taking your state pension and receive it as lump sum, but you'll have to defer for at least a year in order to get the lump sum payment. It's worked out as if you had put the deferred pension into a savings account where it earned 2% above the base rate (currently 0.5%) using a compound interest calculation. So if you hit state pension age in 2015 and just receive the basic state pension of £115.95 a week, over a year you'd earn £6,029.40. Deferring for a year will see you able to take a lump sum of around £6,180. Like the extra pension, the lump sum is also taxable, but only at the top rate you were paying beforehand. You won't move into a higher tax bracket. From 2016, the lump sum option will no longer be available. Should you defer your state pension? If you have retirement income from other places, such as a workplace pension scheme, deferring state pension might be a good deal - you could treat it like a really good savings account. Deferring may also be appealing if you have retired to a country where your state pension isn't subject to the UK's annual increases, such as Australia. However, delaying when you start getting your state pension only really pays off around nine or 10 years after you decided to take your pension. You're giving up over £5,000 in income each year, so it will take some time for that to build back up again. Take into consideration your health - if you're fit and healthy, you could end up with much more money as you get older. Deferring your state pension and benefits Claiming extra state pension will affect any benefits you receive, such as pension credit, house benefit and council tax reduction. This is because the extra amount you get counts as income. However, if you decide to take a lump sum, these benefits won’t be affected. If you’re deferring your state pension, you won’t build up any lump sum or extra pension for the days you're receiving any of the following benefits: Income support Pension credit Employment Support allowance Jobseeker’s allowance Carer's allowance Incapacity benefit Severe disablement allowance Widow’s pension Widowed mother’s allowance Any type of state pension Should I take extra income or a lump sum? This all depends on your circumstances and what you want to spend the money on. The extra pension offers the best deal at the moment, as the interest rate on offer - at 10.4% a year - far outstrips anything you could earn on a savings account. But if you want to get the lump sum, you'll probably beat the best rate you can get currently with a Best Rate savings account. However, if you're in receipt of any of the above benefits, you might want to think carefully about taking the extra income in case they’re affected. |