Deferring the State Pension
The Department for Work and Pensions (DWP) has just published some research it has conducted into the public awareness of the new rules on deferring the State Pension. Not surprisingly, and as with most pension related issues, the level of knowledge about all this among people in the real world was found to be rather limited. The report, though, provides some useful bits and pieces that advisers (and other BeeLiners) may find to be of interest.
People have always been able to defer their State Pension, but since the changes introduced in 2005 they now have the choice of two different ways to do it. One way is to receive something called an Extra State Pension on top of your State Pension when you finally do draw it and the other option is to be paid a one-off taxable lump sum for doing without your pension for a while.
Anyone opting for the extra pension can get an increase to their State Pension of 1% for every five weeks that they defer taking it. That’s about a 10.4% increase for every full year of deferment.
People going down the taxable lump-sum route will need to agree to defer for at least one year and will build up a lump-sum equivalent to the total of the deferred payments plus interest added weekly and compounded. The interest rate used being 2% above the Bank of England base rate.
The whole idea of giving people incentives to defer the State Pension is apparently part of the Government’s campaign to encourage more people to continue working after State Pension Age. Those of you who read yesterday’s BeeLine on the Government’s imposition of a compulsory retirement age of 65 may, like me, find all that rather confusing; our pension system stands accused of many things I suppose, but being joined-up certainly isn’t one of them.
Still, enough of the negativity, the research report makes interesting reading as I said earlier and we’ve appended a link here for any of you who want to look through it:
1 October 2008
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.