When should I retire?
As more of us are working longer, Paul Lewis considers when it’s best to claim state pension.
As more people work beyond state pension age, I often get asked, “Should I defer claiming my pension?” The answer is a definite “maybe”!
If you don’t need your pension then it may be a good idea to delay claiming it, because your pension will be increased when you finally do. The new state pension is boosted at the rate of 1% for each nine weeks of delay. So if you wait a year then your pension will be increased by nearly 5.8%. On a full new pension of £221.20 a week, that would mean an extra £12.82, or £666.64 a year. But remember you have given up the pension for a whole year, missing out on £11,502. On simple arithmetic it will be just over 17 years before you get that back from the weekly extra.
Get cheaper home insurance - compare quotes from Quotezone
Save money on your car insurance by comparing quotes today
At age 67 a man can expect on average to live another 18 years – though with a one in four chance of another 25. A woman has 21 years left on average, and a one in four chance of 27 years. So deferring is a bet on your life expectancy: if you live a long life, you win. If you die young, you lose.
This arithmetic does not take account of the fact that the main part of your pension currently rises every April with the famous triple lock – by the highest of wages, prices or 2.5%. However, the extra you get from deferring is not covered by the triple lock – it will just rise by prices. And if your income is high enough to pay tax then the extra is taxable, just like the rest of the state pension. These all complicate the calculation. But if you currently do not need your pension then you should consider deferring.
Calculate how much more income you could get instantly by using our online annuity calculator.
For older pensioners it was a better deal. People who reached state pension age before 6 April 2016 got a bigger boost – 1% for every five weeks, which is 10.4% a year. They also got the choice of taking the extra as a lump sum. However, if you already get your state pension – new or old – it’s not too late to change! You can de-retire and earn the extra until you claim it again.
Read more of Paul Lewis's advice on claiming state pension
For more information, google “DWP deferring state pension” and “ONS life expectancy”.