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Should I defer taking my State Pension

9th January, 2019

When you reach state pension age you are given the option to postpone the payment of your pension. The current state pension is £164.35 per week for those with at least 35 qualifying years. For each year the pension is deferred, you can expect an increase of 5.78%.

For example, based on full entitlement, by deferring for just one year, you would benefit from an increase of £9.50 each week – or for three years £28.50.

Most individuals simply draw their benefits immediately and, generally speaking, would be right to do so. While a higher pension may appear attractive, the extra amount paid per week represents only a small proportion of the income that has been given up. In normal circumstances, assuming modest inflation, it could take 17 years for the income that would have been paid to be recovered.

That said, in today’s turbulent times, the peace of mind that a secure inflation proofed income provides cannot be understated. Even with a long payback period, the certainty associated to the state pension is hard to beat. For those that need a higher income in retirement, deferring retirement and postponing the state pension might be sensible.

Of course, the payment of the state pension ceases on death. Those in poor health would not ordinarily choose to defer their state benefits – simply because they do not expect to live long enough to benefit from the higher income.

It could be advantageous to postpone the state pension from a tax standpoint. State pension income is taxable. For someone who has continued to work, the state pension may be subject to higher rates of income tax until the individual retires from employment. In these circumstances, the period in which the deferred pension is recovered can be much shorter – in some circumstances it can be recouped in just 9 years.

The Department of Work and Pensions aim to provide you with your options around two months prior to your state retirement age. However, it is important that you have checked to ensure that you have sufficient qualifying years to maximise your benefits. For those that fall short, it is often possible to ‘top up’ and this often represents very good value for money.

You can check your state pension online at https://www.gov.uk/check-state-pension. Or simply download and complete form BR19 from https://www.gov.uk/government/publications/application-for-a-state-pension-statement.

For further guidance and advice, please do not hesitate to contact us.

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