What are the potential benefits of deferring your state pension?
Posted on 24th May 2023 at 13:35
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I have spoken to several people recently who hadn’t realised you can defer your state pension and there are several benefits to a deferral.
When can I take my state pension?
Currently, you will be 66 when you take your state pension but that is due to change for those of us who were born after April 1960. Being a 1962 baby means that I fall into that bracket and the likelihood as I have said before that date is going to move again. I have to be honest and say that although I don’t expect to be working full-time by the time I reach 67, I would imagine I’ll still want to be working at least 3 days a week. I still have a young family and they will have an impact on the choices I make
Deferral of your state pension is an individual choice.
Choosing to defer your state pension must be an individual choice as each person will have their own reasons for considering whether it works well for them. The benefits are generally based around not paying a higher rate of tax as your state pension, added to your income from work, could move you into a higher rate tax bracket.
You should consider your general health as one of the reasons for not deferring your state pension.
I hadn’t realised but there are around 7500 deaths each year at the age of 67. I suppose the statistics aren’t that bad as there are on average around 675,000 (people alive) aged 67. Most of us live until our early 80s, so keeping a healthy lifestyle and retiring later will have some benefits, especially if you are mentally and physically active.
Other than the potential additional tax you might pay, why would you want to defer your state pension?
You would need to take advice at this point to ensure you will not be out of pocket, even deferring your pension for a year. It can take years to recover that amount so do talk to an adviser and find out what will work best for you and your circumstances.The other reason for deferring would be the added % income you receive, this is based on every 9 weeks you defer, you receive an additional 1% and once you have deferred for a year, you will get an additional 5.8% at the current rate. That would give you an additional £11.82 per week, which is an extra income of £614 annually.
You would need to take advice at this point to ensure you will not be out of pocket, even deferring your pension for a year. It can take years to recover that amount so do talk to an adviser and find out what will work best for you and your circumstances.
Also, don’t forget we are only weeks now from the 31st July 2023 deadline to buy back any missing years to qualify for a full state pension. Remember the government changed the rules in 2016 and you must have 35 years of NI contributions to get the full pension. Up to the 31st of July, you can buy back up to 16 years of contributions, but from 1st of August 2023, that number drops back to just 6 years.
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