If you choose to delay receiving your state pension from 2016, the decision to defer will be less lucrative than before.
New government proposals suggest the deferral rate is reduced from 10.4% to 5.8% a year.
This less generous incentive for delaying the receipt of your state pension is likely to discourage more people from a deferral of state pension benefits – and is another example of a lack of joined-up government thinking.
The generous 10.4% a year was originally introduced to encourage older people to continue working, rather than retire and claim state pension immediately on becoming entitled to this benefit.
Now despite the government apparently championing the cause of older people in the workforce – it’s been less than week since they appointed the excellent Dr Ros Altmann to the role of Business Champion for Older Workers – they are removing an incentive to keep working past a traditional retirement age.
It really does make you wonder whether they are making it all up as they go along over in Whitehall.
Analysis of the new state pension deferral rate suggests an individual delaying their State pension for a full year would need to live for at least 19 years to recoup the loss.
It only requires a survival of 10 years with the current rate of 10.4%, if the State pension is deferred for a full year.
The old rate was however particularly generous and the new deferral rate of 5.8% is reasonably good in the current economic environment. It might still appear quite attractive to someone in good health with an optimistic life expectancy and decent employment prospects in later life.
If you are planning to retire, do speak to us about all of your retirement income options, including but not limited to planning options around the State pension.
With retirement income options for private pension schemes changing from next April, it has never been more important to seek professional independent financial advice on the full range of retirement income options, rather than rely on depersonalised guidance which will rarely guide you straight to the right solution.
