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Should you delay your state pension?

birdUsually, the proverb a bird in the hand is worth two in the bush is good advice particularly regarding money. So, for example, a lump sum of cash now than the promise of a bigger one later is often preferable – after all, who can predict the future?

But this isn’t always the case. Take the state pension. I am about 12 years from getting mine. I expect in 12 years’ time I will be pleased to get it, even though the state pension is hardly generous: £164.35 a week at the moment. But what if you’re still working when you can claim your state pension? You may not need the extra income it provides. And what’s often forgotten about the state pension is that it’s potentially taxable if by taking it your income exceeds your personal allowance.

According to Royal London, there are around 950,000 people aged 65 or over who are working and drawing their state pension at the same time. Of these, about 520,000 are earning enough to pay tax which means the whole of their state pension is taxed – and in some cases at 40%. But if they put off taking their state pension until they actually stop working then they will get a higher pension. And they might not have to pay any tax on it or at a lower rate if their income once they have retired is substantially below what it was when working.

If you defer a state pension then you’ll get an extra 5.8% per year state pension for the rest of your life for each year you defer. Royal London calculates a woman aged 65 who puts off taking her state pension for a year could get £4,000 more if she lives until 88. What’s more, if you (or someone you know) is drawing their state pension and working then they can ask the DWP to stop paying their state pension and then resume receiving it at a higher rate when they stop work. Even if you are many years away from getting your state pension, it’s worth remembering that it is actually quite flexible and it might be a good idea not to claim it until you need it. Of course, you should check when you will get the state pension – and how much you’ll be in line for. And if you’re still confused about pensions, check out our guides too.

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Friday, 19 April 2019