To defer or not to defer?
More and more people are continuing to work in later life. According to the Department for Work and Pensions, 10.4 per cent of over-65s are still working, double the amount from 20 years ago. The average age on leaving the workforce is 65.1 years for men, up from 63.1 in 1998. For women, the change is starker: up to 63.9 years from 60.6.
Of course, some of these people continue to work through choice; for others it is down to necessity. In either situation, there is the ability to defer the State Pension until a later date.
Today, people get an additional 1 per cent of pension for every nine weeks they defer, rather than for every five weeks as it was for those who reached state pension age before April 2016. However, the benefit of doing so is considerably less than it was prior to the introduction of the single-tier pension in 2016.
There is also no longer the option to take the additional benefit as a lump sum, with the arrangement only giving a greater income when it comes into payment.
So if someone did not take their state pension for one year, they would get a future state pension of £493 a year higher (just below 5.8 per cent of the maximum single-tier pension of £8,546.20).
This means people will need to live around 17 years before the money they receive from their higher state pension outweighs the loss of the first year of income (although it does depend on how much the state pension increases in the future).
That is not to say there are no potential benefits in deferring – for example, reducing taxable income for those who stay in work – but there is a risk people will lose out financially if they die relatively early. Taking the state pension at state pension age and reinvesting any income not needed into an Isa or pension is an alternative option.
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