Deals for State pensions offer new opportunities

New options for penions are now availabe
New options for penions are now availabe

State pension deferral is about putting off claiming your state pension until a time it suits you.

This means that when you do claim you will get more money. The amount of extra money you get depends on how long you defer your pension. You then have two options; either take a higher state pension for life or take a taxable lump sum payment if you have deferred for at least 12 months. Then you will receive your normal state pension for the rest of your life.

I believe that generally the deals are good with the Government adding 0.2 per cent per week to your pension if you delay taking it. This amounts to 10.4 per cent per year. So for someone with a state pension of £150 per week that amount to £7,800 per year delaying five years would increase the state pension to approximately £11,856 per annum. If the lump sum option is taken then the pensioner would have the option of taking £41,250, assuming an added interest rate of 2.5 per cent and this would be taxable. Then they would go back to taking the standard pension that they would have been entitled to at 65. Unfortunately for people retiring after April 2016 the 10.4 per cent uplift for delay is being reduced to 5.8 per cent. Obviously the Government has decided the scheme was too generous but even this scheme is worth considering for some. Although it does mean that by delaying a year a person will now have to live 19 years to start to gain as a result of deferring, rather than the ten years at present.

As mentioned earlier I believe the existing offer is excellent if you can afford to delay, but also the new deal is worth considering if you are in good health with perhaps a history of family living into old age. In addition if you are still working and paying 40 per cent tax now, then adding the state pension may not make a lot of sense. This is particularly so if at eventual retirement your basic rate would drop to 20 per cent. However, if you are in poor health and are particularly concerned about your spouse benefits from you pension then you should probably go ahead and draw your benefits. As always it is worth taking independent advice to ensure you make an informed decision on this matter.