Delaying your pension by one year could net you thousands

Emma Woollacott
Couple with coins
Couple with coins

If you have enough to live on in the meantime, deferring your state pension for a year can make you £410 a year better off for the rest of your life.

If you can hang on for seven years after the official retirement age, you could be in line for £1,640 extra a year - guaranteed and protected from inflation. This works out at £40,300 over the average lifetime.

This, according to calculations by Fidelity Worldwide Investment, is the optimal delay, given Office for National Statistics longevity figures. These predict 22 more years of life for a man aged 65 and 27 years for a woman aged 62.

It's only possible to do this if you've either reached pension age already or will do so before April 2016, in which case you'll be entitled to an extra 1% increase in your pension for every 5 weeks you delay - an increase of 10.4% for every full year. Otherwise, though, the increase is much lower.

Calculate your pension income options

And instead of taking the higher pension you can take a cash lump sum, equal to the pension payments you would have received if you'd taken your pension at the state pension age, plus interest added at 2% above the bank base rate.

You'll need something to live on in the meantime. However, now that over-55s are allowed to access all or part of their private pension pots, far more people will be able to manage this than ever before. Indeed, Fidelity reckons that around 60% of retirees could afford to defer theor pensions at least for a while.

A freedom of information request submitted by Fidelity to the Department for Work and Pensions found that for the six months to February 2014, just under 270,000 people started to draw state pensions.

However, only 23,000 of these chose to defer their benefits, while the remaining 92% drew the pension immediately.

Calculate your pension income options

"Income from the state pension is very secure and currently has the benefit of annual increases at least in line with inflation," says Fidelity.

"Providing the same level of guaranteed, inflation-linked income using an annuity is likely to be very costly."

The firm warns that deferring a state pension might not be the best move for everybody. If you're in poor health, you may not live long enough to benefit, whereas putting the money into an annuity would give you a better rate.

But, says Fidelity, the trend towards working past retirement age, combined with the new pension freedoms, mean that it's an attractive opton for many. And doing it couldn't be easier: if you can't be bothered to contact the DWP, all you have to do is ignore the letter that tells you how to apply for the state pension. The changes will be applied automatically.

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