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Should I delay state pension?

Retirement | State Pension Helpful? 10

Asked by kierano82, submitted 09 June 2012.

Open Quote I'm due to recieve my state pension in a few months time. I'm currently working full time hours and work has said that they would like to keep me on, on the same hours past my next birthday, I like my job and the work I do in the shop.

I don't have any other pensions in place apart from my state pension and minimal savings, am single and have never been married so know one depends on me. With my wages i can survive week to week, I have been told that I can delay my state pension if I want, as my wages cover my outgoings. Should I delay it?

Is there any benefit in delaying it? My friend said take it out straight away given that I've been paying in long enough. I honestly dont know what to do?

Thanking you in advance for your help
End Quote

Answered by Justin on 13 July 2012

If you delay taking your state pension it will continue to increase by either 0.2% per week until claimed (equal to 10.4% a year), or the value of the unclaimed payments plus annual interest of 2% plus base rate (so currently 2.5% a year).

To give a simple example. Suppose you're entitled to £130 state pension (including any extra pension due to SERPS/S2P) at age 65 and you delay for a year. Let's assume inflation is 3% so the £130 pension becomes £133.90 a year later. If you'd deferred the pension it would instead be £133.90 plus 10.4% = £147.83. Or, you could instead take a (taxable) lump sum equal to the missed payments plus 2.5% (assuming base rate is 0.5%), equal to approximately £6,845.

There is no definitive answer on whether it's worth deferring if you don't need the money now, it's really a gamble on how long you'll live. If you delay for a while then live a long life you'll probably be quids in and, of course, vice-versa.

You might find it helpful to have a play with our State Pension Delay Calculator to get estimates of break even points versus average life expectancies when deferring. You might also find it helpful to read my article on state pension delay.

Having said all this, as you have minimal savings I'd be inclined to seriously consider taking your state pension rather than delaying. This way you'll get cash in the bank (use a savings account/cash ISA with decent interest) which could be very useful to fall back on if you have a financial emergency. Yes, you could delay and take the state pension lump sum instead when needed, but the taxable rate of 2.5% interest is less appealing than current 'best buy' tax-free cash ISA rates paying around 3%. Plus, having the money in the bank gives you more flexbility.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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