A brown envelope fluttered through the letterbox yesterday; it was from the DWP inviting me to apply for my state pension. I e-mailed my working wife, saying that I couldn't decide if it was a :-) or a :-( She said that it was a definite :-) as I was going to get old anyway, so getting paid for doing it was something of a bonus.
The letter talked about deferring the pension, something I'd never thought about. There must be one or two on here who've been faced with the same question. On the one hand, we could survive without the pension quite easily for the time being as my wife will continue to work, retiring at the end of the next school year. My longevity is the big unknown, made no easier to predict by the fact that mum died at 50, while dad is still going strong at 88.
Any advice from the panel?
Cheers
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You need to do the arithmetic between taking it now and what they quote you for deferring. This is what Which say:
www.which.co.uk/money/retirement/guides/state-pension-explained/deferring-your-state-pension/
I suspect CAB or Age will have advice on he subject too.
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>>Any advice from the panel?
Take as much as you are entitled to at the earliest opportunity.
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Have they sent you this leaflet?
www.gov.uk/government/uploads/system/uploads/attachment_data/file/299286/dwp024-apr-14.pdf
Deferring taking the state pension is currently a very good deal, if it suits you. You can in effect convert the amount you forgo into an index linked annuity at a rate of about 10% i.e. if you forgo payments for a year, your pension for life will be increased by 10.4%, and pro rata for longer deferrals. Alternatively, at the end of you deferral, you can just have the sum of the payments you have forgone paid as a lump with interest at base+2% (taxable of course as the pension would have been).
The deferral + lump sum is not such a giveaway but fair; but it might suit you if you are still working because any pension you draw now will attract your marginal tax rate.
If you defer for a year, then take the higher pension, then it follows you need to live about 10 years to break even in real terms. But you might not care about losing out if you are dead, whereas it could be quite handy to have extra index linked pension if you survive.
Depending of course on the situation re dependent spouses, what other income you will have, and whether it is index linked.
My state pension will be the only fully index linked income I have so it would be quite handy to increase it by deferral. But I probably won't, because I'll get mine (if spared of course) under the new rules from 2016 when the benefit of deferral will be at least halved.
E&OE.
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Have you seen this link?
www.gov.uk/deferring-state-pension/what-you-may-get
I could have taken my state pension in February this year but have decided to carry on working for now. (“I don’t want you under my feet all day” was also a factor!) So I’ve deferred my pension for a year or so until my wife can also draw hers.
It seems to me that the decision is whether to take the accumulated deferred pension as a lump sum or to take it as an enhanced pension. Taking it as a lump sum attracts income tax but so does drawing it weekly, depending upon other income.
Looking at the link above, in round numbers, your pension goes up by £600 P A for every year that you defer it but you have forgone your years pension of £5900 to do it. My simple arithmetic tells me that that is 10 years to break even.
The deferred lump sum, with interest is about £6000. Drawing this, as a lump sum will attract, for me, 20% tax. Leaving a sum of £4800.
To achieve the same amount by enhancing my pension would take about 8 years.
Then you are in the realms of how long have I got left, so to speak, and will I be around and in a cognitive state to enjoy the enhancement! (As dirty Harry said, “How lucky are you feeling, punk?”)
My inclination at the moment is to go for the lump sum. It’s enough to do something with and doesn’t require any effort to save.
I’m not a tax or financial expert, so most of my assumptions and calculations are done as a layman. Someone who really knows their stuff will probably point out my false assumptions and I’ll be better informed as well.
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This article may also prove of interest:
tinyurl.com/pfqrodx
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Many thanks for the replies and the links - things are likely to be a bit busy over the next few days (elections etc), but I'll come back when I've had time to read all the links.
My SiL has just rung from Australia; she said that deferring her pension was the 'no-brainer' as suggested in the first link. Because a UK pension is not index-linked in Australia, she had deferred for 5 years i.e. from 60 to 65.
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Money in pocket now is worth more than money in pocket in future.
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"Money in pocket now is worth more than money in pocket in future."
My view exactly - except that, if I could manage without some of that money, it wouldn't be "sitting in my pocket", but gathering interest. Yes, interest rates are low, but it would be worth factoring that into the calculation.
My decision, after doing some maths, was to take everything now, even though my family has a history of longevity.
Last edited by: FocalPoint on Wed 21 May 14 at 14:58
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Bear in mind that if you choose to defer your state pension rather than take the money and save it if you happen to die before it becomes due that is money lost to whoever you leave behind.
At the end of the day the scheme is designed to be financially neutral and actuarially the cost to the government is same on average whether you take the money or defer it so there is no absolute "right" answer.
Last edited by: CGNorwich on Wed 21 May 14 at 15:15
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>> Bear in mind that if you choose to defer your state pension rather than take
>> the money and save it if you happen to die before it becomes due that
>> is money lost to whoever you leave behind.
>>
Not if you go for the lump sum option. The lump sum is paid to your dependent - unless the rules have changed.
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Deferral IS worthwhile if your tax position is such that taking it now gives rise to tax payments which would or could be avoided in future.
My wife deferred hers for 6 years.... paid no tax on the lump sum...
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Yes that is correct - you will get a lump sum calculated on the amount of pension you have deferred up to your death.
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How appropriate this thread should start the same day as my state pension!
No brainer I reckon, take it now.
I don't need mine, but reckon I could walk under a bus tomorrow or have some other fast demise. Jam today and all that.
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I don't trust any government not to steal all or part of my pension by changing the rules at any time to suit themselves.
So my gut feeling is to take it now with the conflicting thought that .... as said before .........
" Deferral IS worthwhile if your tax position is such that taking it now gives rise to tax payments which would or could be avoided in future."
So, take it now and get a guaranteed hit in the pocket or delay taking it but take the risk that you'll be hit by government legalised theft.
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>.I don't trust any government not to steal all or part of my pension
The current rules are well established and feature in the pension planning of a lot of people. I wouldn't worry about that TBH.
What we do know is that the rules will change for those who qualify from 6th April 2016 onwards.
Trading a year's pension for a 10.4% hike on an index linked pension is a brilliant deal when there is an uncertain inflation outlook (i.e. always). Deferring for a year or two to reduce tax and getting a lump sum is also sensible, if you don't need the money.
I don't trust the government not to steal from me either. That is what they are currently doing, knowingly, by keeping interest rates below inflation and one reason they are probably quite peeved that inflation has gone down so much. The other is that related wage inflation increases the proportion of real incomes taken in tax as people move into higher brackets.
When interest rates have to go up, they will if necessary engineer an increase in inflation.
The point being, it's worth thinking about increasing the level of your inflation-proof income, looking 10+ years ahead, depending what other provision you have and assuming you can reasonably expect still to be clogging into your late 70s and 80s!
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"The current rules are well established and feature in the pension planning of a lot of people. I wouldn't worry about that TBH."
I'm afraid I have to disagree. Rules are changed, fudged and generally fiddled with frequently. For example, my Mrs has been robbed of £18,000 pension income by the state retirement age being suddenly raised with short notice for women of a certain age.
I was banking on collecting my £140 or £155 or whatever it is fixed - "everybody gets one" pension in a couple of year's time.
I now think not: www.thisismoney.co.uk/money/pensions/article-2634215/Why-millions-WONT-155-new-state-pension-theyre-expecting.html
Robbers.
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Sorry DE confused you with the OP.
If my pension was due now, I wouldn't be unduly worried about deferring for the 10.4%/year increase - I can't see them reneging on that when you have made the election.
But in general you are right, don't assume that everything else will stay the same indefinitely. At the first hint of the 25% tax free pension commencement lump sum coming under threat I shall crack my SIPP and take it. I fear that might have been the ulterior motive for the recent changes to pension choice.
The Daily Mail piece isn't exactly 'news' and it reflects the lack of specifics in information provided so far and corrects widespread previous crap reporting.
I'm not expecting to get the full flat rate pension either despite having c. 39 years contributions, owing to having been contracted out part of the time.
The last pension forecast I had a couple of years ago, when the figure being bandied about was £144, was £123 or so (under the old/current system, and including some S2P/SERPS). My understanding was that there would be a reduction for me on the £144, but nobody should be worse off than they would have been under the old system, so I have assumed £120 a week in real terms, 2012 values) for planning purposes.
It was pretty clear from the outset that the new pension wasn't going to be all good news, bearing in mind it was going to be cost neutral.
I suggest you get a pension forecast as a starting point if you haven't done so already. It's still based on the current system even for those (like me) who will reach state pension age under the new one, but it should give you a safe(ish) number to work with.
It's very poor that it is still not possible to get a proper forecast for anybody retiring after 5 April 2016. Shameful in fact.
I also agree that the second bite at increasing the pension age was very unfair to some women in particular.
www.ageuk.org.uk/money-matters/pensions/what-the-new-state-pension-reforms-mean-for-you/
Last edited by: Manatee on Sat 24 May 14 at 19:54
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Manatee
No firm date yet but a forecast of the pension you will get from the new non flatrate pension if you were contracted out will be available later in the summer.
A lot of people with final salary pensions and contracted out defined contribution pensions will not be happy.
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Thanks Glenside.
I won't get my hopes up!
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And welcome to you, Glenside - hope you'll be sticking around.
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Will the new flat-rate £155 apply to us folks who are on pension already ? In my case, I hope not because I am on a state pension of about £170. I have 48 yrs contributions.
SWM is on a state pension of £75 so will hers go up to £155 or remain as it it now ?
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Horace,
Age Concern says -
A current pensioner
You will not be affected by the changes and will continue to receive your State Pension in line with existing rules. So, if you currently have a pension of less than £144, unfortunately you will not be able to receive more.
We know that many pensioners are disappointed to have been excluded from the new single-tier pension. Age UK is keen to see improvements for those people who have already retired.
1.7 million older people currently live in poverty and 1 million of these people are living in severe poverty. This is not good enough. We want the Government to set out a timetable and strategy to reduce and abolish pensioner poverty.
We also want the Government to extend the single-tier pension to current pensioners.
If you are a current pensioner and feel strongly about these issues, you could write to your MP.
You need 35 years for the full flat rate pension though, which is currently about £113 IIRC. Presumably Mrs Ontaltwin doesn't have a full card anyway.
Mrs Dugong gets £120 a week, she has credit for the child years and some SERPS. My SPA is in 2018, but I won't get the full flat rate, even with some SERPS because I was contracted out.
I believe there are provisions coming in next year that will allow you to "buy" more pension with a new class of voluntary NI contribution, but it doesn't sound very exciting to me!
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Phew ! That's good news for me then, Dr Dugong. SWM didn't work for many years as she was raising 3 brats so we didn't expect a big pension for her anyway. Not right, in my book, as I consider raising kids properly just as important as any other work.
Still, we can't complain..I get DLA and carers allowance, adding another £108 a week....plus Civil Service and Police pensions and a bit of part time work and bank interest..
MIL, in her last years only got about £90 plus a few quid income support ( now pension credit ). A real pittance to keep a house running ! She died 5 yrs ago yesterday at 94 yrs.
Shame for folk on the basic now.....£113 ridiculously low. IMO.
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As I seem to have inherited my mother's high blood pressure and I have already lived 14 years longer than she did, then I've decided to take the pension now; 'bird in the hand', and all that!
I tried to claim 'on-line', but then found that I had to register with the 'Government Gateway'. Whenever I've tried to do this before, I have failed miserably - the problem being attributed to my Mac/Safari combination.
Have any of you chaps successfully passed through the Gateway in recent times using a Mac/Safari means of entry? If not, I'll have to resort to using my wife's pc laptop.
Thanks
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"Yes. No problem."
Thanks - I'll give it another try. It must be a couple of years since my last doomed attempt.
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I spent 10 years working abroad, in the 70s, and I made sure that I paid the measly £4 a week of what I recall was a Class 4 NI contribution. Ladies working at home should consider making this voluntary contribution. My State pension has gone up by £4 a week since April 6th so my contributions have dome me well
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Not Class 4 - would be either Class 2 or Class 3.
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Quite right - the memory plays tricks! Class 3 and excellent value in my dotage!
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I think you made the right decision, Haywain. When I retired I had a company pension and could have taken a large part in cash. I decided to forget the cash and take the maximum monthly payments. Hugely comforting to get the bank account filled each month, and if any is left over one can stuff it away.
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"I think you made the right decision, Haywain………………………………... "
Thanks - though I kind of hope that I was wrong - if you see what I mean!
I also opted to take early retirement (at 53) without the cash, in order to maximise the monthly payment. At (nearly) 65, it's looking like a reasonable decision - so no point in pushing my luck.
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It's rarely good value to commute any of a defined benefit pension, so you almost certainly did the best thing. I certainly won't be commuting any of mine.
Annuity purchase is usually a different case - get as much as possible tax free.
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Not such an issue since the budget, everyone can do draw down. No necessity to purchase an annuity.
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"I certainly won't be commuting any of mine."
Back in 2002/3 when I made the decision not to take any of the tax-free cash on offer, the smart-asses were boldly announcing that they were going to take the cash and invest it themselves. Who knows whether they actually did that, or not?
I'm not a gambler and generally take the most straightforward approach - and this has served me well over the years. I have a distrust of those who who try to peddle their advice - they stand to make more money from it than me.
I didn't go with an 'endowment' mortgage when it was being pushed, nor did I opt out of the company pension scheme. I certainly don't regret either of those decisions.
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I'm with ^this^ geyser...100%
As Dog would say !
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>> As Dog would say !
I do hope he will reappear and say it himself. I have a horrid feeling he's flounced, and an even horrider feeling that I may have been, quite unintentionally, responsible to a very slight degree.
Come back Perro. Show some South London spirit.
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>> >> an even horrider feeling that I may have been, quite unintentionally, responsible
>> to a very slight degree.
>>
Guilty conscience?
Never be tempted to own up to a crime you probably didn't commit.
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" I have a horrid feeling he's flounced, and an even horrider feeling that I may have been, quite unintentionally, responsible to a very slight degree."
Two points: first, "flounced" implies a theatrical, petulant exit. If Dog has left, his parting word was simply "adieu". Quite dignified, really. And yes, in the way in which the French use it, it means a final farewell, as opposed to "au revoir".
Secondly, his departure may be be due to RP's moderation of an earlier post, which Dog quoted (possibly mockingly) before the word "adieu".
So AC may have been ever so slightly responsible, or maybe not. Hardly worth getting uncomfortable about.
I can't be bothered to deconstruct the thread in which all this occurred. Suffice to say, as has been said many times, it's just not worth investing so much of your personal energy and ego in what you write on a discussion forum such as this that you to get wounded in the process.
Argue passionately by all means, but keep a little distance.
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On re-reading the above, I suspect I may seem hard-hearted about Dog. I should add that, if he really has gone, I shall miss his unique style, his humour and his remiscences about his former existences in London and Tenerife.
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Just to confirm what CGN advised - I registered with the Government Gateway and successfully got onto the pages for claiming a state pension; this was using the Mac/Safari combination.
Mind you, the questions relating to the pension claim were somewhat ambiguous - they were designed on a 'one size fits all' basis so some serious head-scratching was required.
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A state pension question….. - Bromptonaut
