Jam Tomorrow: Should you Consider Deferring Your Pension?

In 2019 pensioners got a 3.9% increase in their state pension and can expect to receive £9,109.12 in 2020.

This might sweeten the news that those able to claim the state pension must be at least 66 years of age on 1 October 2020.

Triple-lock

According to the triple lock mechanism, the amount the state pension can rise per annum is a minimum of 2.5%.

However, if a retiree defers the state pension by one year, that amount instead rises in line with the Consumer Price Index, which has averaged a 2.55% increase since 1990.

This tiny difference means that the one-year deferred payment will earn slightly more and the difference is put back into the individual’s state pension.

What you get if you defer

Despite this, it would take 15 years for the growth of the deferred payment to offset the debit of the deferment.

Only retirees who reach the age of 81 would benefit from the deferment. So deferring just one year of pension is gambling on good health.

Martin Ansell, pension expert at NFU Mutual, which calculated the figures, said ‘Deferring the state pension is essentially a gamble on your own life expectancy.’

If a retiree chooses not to defer their pension, after 15 years, the annual payment would be at least £13,192.72 (assuming that the triple lock remains in place).

If the retiree deferred the first year of the pension, after 15 years the total deferred state pension would be £13,963.52.

In comparison, if the pensioner took the same £9,109.12 and invested it in the FTSE All-Share 15 years ago (assuming the same rate of growth in the future as there has been in the past), the amount would be £26,224.11.

As Ansell pointed out, ‘If you don’t need the money, an alternative would be taking the cash and investing it wisely.’

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