Expert Gareth Shaw offers advice on building entitlement to the state pension
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Many people assume they are obliged to start drawing their State Pension from age 66, but if you delay you may get a lot more money when you finally do take it. So should you consider deferring your pension?
Pension deferral involves delaying the age at which you start taking the State Pension, in return for getting more income later.
It is even possible to defer State Pension payouts after you have started claiming them, although you can only do this once.
Sandra Wrench, 69, from Bedford, said pension deferral has made a big difference to her quality of life in retirement.
Instead of getting around £150 a week, she now gets about £310 a week, a figure that includes additional State Pension payments.
When Sandra turned 60, almost 10 years ago, she decided to carry on working part time but defer drawing her State Pension.
She knows the scheme inside out, having worked for the Department for Work & Pensions for years, including 18 years specialising in the State Pension.
Her experience convinced her of the benefits of deferring, knowing that she was building up her entitlement.
Sandra also decided to plug shortfalls in her National Insurance (NI) record by making voluntary Class 3 NI contributions.
She ended up delaying taking her State Pension for seven-and-a-half years. Today she gets £16,000 a year.
Those retiring on the old basic State Pension get a maximum £137.60 a week, worth £7,155 a year, plus any additional State Pension they may have built up. Those retiring under the new State Pension get a maximum £179.60 a week, or £9,339 a year.
Sandra’s State Pension income includes additional pension she had built up under the old scheme, which was phased out on 6 April 2016.
She now uses her expertise to help friends and family claim their maximum State Pension entitlement, and urges women to get a pension forecast from the Gov.uk website and plug any gaps in their NI record. “The sooner you work out what you are going to get in retirement, the more options you have to boost your State Pension,” she said.
One benefit of deferring your State pension is that you get more income when you finally draw it.
Many who work beyond age 66 risk being pushed into a higher income tax bracket if they draw State Pension at the same time. Deferring until you have stopped working or your earnings are lower may cut the bill.
Despite the potential benefits, just one in 10 defer their State Pension, said Stephen Lowe, director at retirement advisers Just Group.
Of those who defer, around half do it for one or two years, with a quarter deferring for three years, and the remainder for longer.
The minimum deferral period is five weeks.
Deferring will not suit everybody, but it is important to know you have this option, in case it is right for you.
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Those who retired under the old State Pension, like Sandra, will get a better deal by deferring.
Their pension increases by 10.4 percent for each year they defer, worth an extra £744.12 a year. It can also be taken as a taxable lump sum.
There is no lump sum option under the new State Pension and the increase is just 5.8 percent, Lowe said. “This is worth £10.42 a week for a year’s delay, or £541.67 a year. It is still worth considering, though.”
The downside of deferring is that you will sacrifice State Pension income while you wait. “Typically, it takes around 10 years to claw this back under the old system, but 17 years under the new one,” Lowe added.
Deferring makes more sense if you are in good health as your life expectancy is higher, said Andrew Tully, technical director at Canada Life. “In practice, most people need their full State Pension as soon as they are entitled to it.”
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