Why You Should Not Defer Your State Pension

so when you get to state pension age you usually have a choice either take your state pension straight away or defer it to a later point in time if you do decide to defer it your state pension will increase so that when you eventually get the payment it will be slightly higher than if you had taken it straight away now it's usually not a good idea to defer your state pension because even though the state pension does increase when you eventually get it it can take many years for you to recoup the Lost Years of payments that you would have received had you started your state pension straight away and in some cases you could be well into your '90s until you're overall better off by deferring your state pension in this video I'm going to run through some of the reasons why people do decide to defer their state pension what happens to the state pension if you do decide to defer it and let's run through some of the calculations to look at why deferring a state pension might not be a good idea for you my name is KL Roberts and I'm a chartered regulated financial planner so if you decide not to take your state pension at state pension age then the amount of State Pension you receive when you eventually take it will increase this is providing you defer it for at least 9 weeks now for every 9 weeks you defer your state pension you'll receive around a 1% increase so if you deferred it for a whole year your annual state pension could increase by around 5.8% so as an example at the time of filming the current state pension is 20385 per week now if you were to defer that pension for a whole year it would increase the weekly payment to 21567 which is an extra £550 per year now you can defer your state pension for as long as you like but be careful not to end up in prison though whilst you're in jail your benefits are basic Bally Frozen so you don't get any increases so why do some people defer their state pension I mean it's money that's due you're OD it you can take it why not take it straight away well some people defer it because they're perhaps still working they've got a decent salary they don't actually need the state pension income and if they were to take it it's just going to end up being taxed potentially pushing them into a higher rate tax Band well there might be a higher rate taxpayer already so could lose 40 or 45 % of the state pension so instead of receiving it now they defer it till the point in time when they're not working and some people just want a higher level of State Pension income later on in their life and they're prepared to defer to get it now I don't think it's a good idea to defer your state pension even if you don't need the money and even if you're a higher rate taxpayer now let me explain why so if you do decide to defer your state pension for just one year then based on rates that at the time of filming you'd be giving up around 9,471 for a whole year State Pension now remember You've Lost That year of income so let's look at example and keep it really basic at this stage we're not going to factor in any tax at this point so if a 66y old was to defer their state pension for one year and the state pension increased every year by around 3% then it would take them to about age 91 until they were better off deferring their state pension rather than taking it straight away so even with the pension increase in deferment it's still taking you around 25 years to recoup that year that you've given up so keeping with the same example let's this time factor in a bit of tax let's make it a bit more realistic so let's assume that the 66y old is still still working is a basic rate taxpayer so he's planning to defer his pension for a year and we'll assume that when he eventually takes the state pension he won't be paying any tax on it now basic rate taxpayer in this scenario will still have to wait 21 years to be better off than having taken the pension straight away and paying basic rate taxpayer on it and if we look at the same example that this time for a 40% taxpayer that 40% taxpayer still needs to wait 17 years to be better off if they deferred their state pension for one year so quite a compelling case I think that you're better off having the money now taking it even if you end up paying quite a bit of tax on the state pension income it's still your income and it's still better to have something rather than nothing unless you think you're going to have a very long life expectancy where you end up going to be taking far more income having deferred it now there is one really good solution to have the best of both weals so if you are still working you don't need to State Pension income and you don't want to pay a load of tax on it still take the state pension at state pension age but contribute this pension into a personal pension maybe your workplace pension or your own uh personal pension you you've set up yourself pay the state pension money into this pension and you'll receive all the tax back that you would have paid on your state pension now you can only do this providing you are earning you you have earnings up to at least the amount of the state pension contribution you want to make but it's a really good way of actually receiving your state pension whilst you may be taxed on it up front you can reclaim all the tax paid on it by putting it into a personal pension and then of course the idea is that money could then grow inside the pension as well providing you've got a good investment strategy chosen now quite frankly the data and the evidence shows us that you're likely to spend less as you get older so more income now is likely to more be more useful so you can go out and enjoy life more at your healthiest and fittest I hope you found this video useful please don't forget to subscribe to the channel because there's lots more videos coming soon on retirement planning pensions investment strategies so tune in for the next one

Channel: Carl Roberts

Views: 5,366

Keywords: State Pension, Deferring your State Pension, Personal Pension, Pension Contributions, Income Tax, State Pension Age, State Pension increase, Carl Roberts, RTS Financial Planning

Id: UxecUeip5Ak

Length: 6min 29sec (389 seconds)

Published: Thu Dec 07 2023