Defer retirement for a year, make £10k
If someone told you if you waited a year for something they’d give you £10 grand would you do it? That is the realistic prospect faced by thousands of people approaching retirement age, according to brokers Fidelity, who have calculated that delaying drawing your state pension for just one year could make you more than £10,000 richer.
Fidelity Worldwide Investment have calculated that, for those officially retiring before next April, a one year deferral works out at an extra £410in state pension a year, owing to the current 10.4% boost added for each year of deferral. If you multiply this annual figure by average life expectancy of 24.5 years (based on ONS figures, of 22 years for a man aged 65 and 27 years for a woman aged 62), you get an extra £10,000 before you pop your clogs. If you can put off drawing your state pension for seven years, the total amount you get will be £1,640 higher per year, totalling £40,300. Note, however, that these figures only apply to people who either have already or will hit state pension age before April 2016 - for anyone younger the rewards become much less generous, as the annual top-up falls to 5.8%.
So given that this only applies to people of a certain age in their sixties, who actually have enough stashed away to survive without a state pension, or who can continue working for a few more years, Fidelity have nevertheless calculated a helpful table of how long a deferral earns you how much extra pension. Seven years is the winner, according to them.
So does this sound appealing? Well in order to defer your pension, you can either notify DWP, or just fail to claim the pension once they send you details of how to claim. Alan Higham, retirement director at Fidelity Worldwide Investment says you can suspend taking your state pension if you have already started it by notifying the DWP, and still benefit from the added value.
Higham also says that due to their longer life expectancy, women are likely to benefit more than men from deferring their state pension, and notes that “some people die earlier than expected” calculating that potential deferees would need to live for more than 10 years after state pension age for this to pay off, adding that this should be a “reasonable prospect for the majority of retirees.”
And there’s always a disclaimer. After extolling the virtues of deferring, Higham warns that “retirees looking to defer their state pension should always seek the appropriate guidance or advice as deferring could negatively impact on some other welfare benefits” and notes that “people with no other source of income after state pension age would not be able to afford to defer taking it.”