Should you defer taking your State Pension?

Should you defer taking the State Pension?

At present, the maximum State Pension you can receive if you take it when you reach retirement age is £159.55 a week.

But if you don't need it straight away, you can defer - or delay - taking it, and receive a higher amount of pension per week when you do start claiming.

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For every nine weeks you put off taking your payments, they go up by 1%. Delay for a whole year, and the payments you get will increase by just under 5.8%.

In cash terms, this means you will receive an extra £479 a year, on top of the £8,296.60 received by those who take the State Pension straight away.

That's less than you used to get. For those who hit retirement age before 6 April last year, the percentage increase available on deferral was 10.4% a year.

But 5.8% is still a lot better than the rate of interest you can get in any easy access savings account on the market at the moment.

So should you defer your State Pension? Let's find out.

How does it work?

Once you're four months away from State Pension age, you can either claim your State Pension or not. If you decide to defer, you simply do nothing. Your pension will automatically be deferred until you claim it.

Unless, that is, you are on benefits. Deferring can affect how much you can get in benefits, so you must tell the Pension Service if you're on benefits and you want to defer.

Benefits affected by deferring - and receiving higher payments as a result - include: Income Support, Pension Credit, Housing Benefit and Council Tax Reduction.

Either way, if you do decide to defer, you can receive your extra money in the form of higher regular payments or, if you defer for at least one year, as a one-off lump sum that includes interest set at 2% above the bank of England base rate.

You can claim a deferred State Pension at any time either online or by calling 0800 731 7898.

Once you receive it, the extra amount will be taxed in the same way as the rest of your state pension.

Should I defer my pension?

If you have retirement income from, for example, a workplace pension scheme, deferring your state pension might be a good deal - you could treat it like a really good savings account.

However, deferring your state pension for a year nowadays only really pays off 17 years later. You're giving up thousands of pounds in income each year, so it will take some time for that to build back up again.

But you could win long term - it all depends how long you live.

Ian Price at St James's Place Wealth Management said: "For someone who has sufficient income or savings to live off in the meantime, delaying the State Pension can be an attractive option.

"However, retirees looking to defer their State Pension should always seek appropriate advice as deferring could affect other areas of financial planning and some other welfare benefits."

How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to - because while baby boomers know how to have fun - they also know how to save for the future.


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