Delaying pension benefits – a difficult decision
Pension investment funds will, in the main, have fallen in value over the last couple of years, although some may have recovered if not all of their value a good chunk of it.
So the challenge for those individuals who are close to retirement is going to be do they take their benefits now or do they defer taking benefits in the hope of further recovery.
Quite a challenge!
If you choose to defer there is of course no guarantee that the pension investment funds in the short term will get back up to their original peak. Nor is there any guarantee that the annuity rate (or whatever method you use to convert your pension fund into income) will be higher in the future.
So you could be hit by a “double whammy”; a further reduction in investment fund value and lower future conversion rates. It seems hardly worth waiting for those two events to coincide.
Of course by deferring you miss out on the enjoyment of the money now (tax free cash and pension income) and if you crunch the numbers you can work out how many years it will take to get the same level of benefits if you do defer and the fund value does rise.
You may decide, as a client of ours did this week, that “phasing in the benefits” is a better approach with the prospect of some benefits now but the possibility of higher future benefits in respect of the benefits not immediately taken.
This is not an easy decision so it pays to consider all of the options available to you.
You will need to find out what the current value of your pension fund is now and what benefits you might get if you take them now. It is then possible to try to predict what the differences might look say next year and the year afterwards in order to do the comparison.