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Deferring can boost future payments but it takes a long time to make up for 12 months of lost income
Thursday 26 Sep 2019 Author: Tom Selby

I understand that you can defer taking the state pension and wondered whether or not it would be financially sensible to do so. I’m 60 now so due to receive my state pension at age 66 (assuming the Government doesn’t move the goalposts again).

What exactly are the rules  and how likely is it that deferring will eventually pay off?

Bridget


Tom Selby, AJ Bell Senior Analyst says:

If you decide to take your state pension later than your state pension age, you’ll receive a higher weekly amount in return. Your annual state pension payment will increase for every week you defer, provided you defer for a minimum of nine weeks.

For those who reached state pension age before 6 April 2016, the Government offers a particularly generous 10.4% uplift for every year you delay taking the benefit. However, for those who reach state pension age after 6 April 2016 the rate has been cut substantially to 5.8%.

Given the vast majority of people deferring will now be caught by the 5.8% rate, it is this I will focus on here.

If someone is entitled to the full flat-rate state pension of £168.60 a week, deferring one year will mean that at age 67 they receive a weekly payment of £178.38.

At the moment annual state pension payments are also protected by the ‘triple-lock’, meaning they rise in line with the highest of average earnings, inflation or 2.5%.

So at what point would you ‘break even’ in monetary terms if you put off taking your state pension for a year? When you plug the numbers in (I’ve assumed the state pension increases by 2.5% a year in both cases), it suggests you’ll have to wait until around your 89th birthday for the higher annual payments to make up for the year of income you missed out on.

Whether it makes financial sense to delay getting your state pension will depend on your personal circumstances and, in particular, life expectancy.

This will be affected to a large degree by your health and lifestyle choices. So if, for example, you are a heavy smoker or have a life limiting illness such as diabetes or cancer, the chances of you living long enough to earn back the deferred year of state pension might be relatively slim.

If you are in good health, on the other hand, there is a better chance deferring your state pension will eventually pay off.


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