Increasing your State Pension
The new tax year on the 6th of April sees an increase in the basic State Pension, taking it up from the current £8,546.20 to £8,767.20 a year – an extra £221.
Thanks to the government’s “Triple Lock” policy – maintaining the value of the State Pension at least as high as increases in earnings, prices, or 2.5%, whichever is the greater – the current increase in the State Pension represents 2.6%, which is higher than the rate of inflation, explained the Chronicle on the 17th of October 2018.
The possibility of increasing the value of your State Pension still further was examined in a story in the Express newspaper on the 18th of February.
Increase your State Pension still further
Although life expectancy rates have flattened out in recent years, according to the Office for National Statistics (ONS), those entering retirement now are likely to enjoy a longer life than those who retired, say, ten years ago.
While you no doubt welcome that prospect, you might also be worried whether you have made sufficient provision for your savings and pension income to see you through those extra years.
If you are fit and healthy – perhaps looking forward to continuing in some form of employment during the initial years of your retirement – you might want to look at the benefits of deferring receipt of your State Pension. The reason is simple – the longer you delay taking your State Pension, the bigger it is when you do take it.
Deferring your State Pension
The amount by which your State Pension increases depends on the date on which you qualify for it. If that date is after the 6th of April 2016, you increase the value of your State Pension by 1% for every nine weeks you delay its receipt – an annual increase of nearly 5.8%.
In monetary terms, with the current State Pension worth £8,546 a year, by deferring its receipt, you could increase it by a further £493 a year.
If you reached State retirement age before the 6th of April 2016, you are likely to be even better off for having a deferred payment. In that case, the value of your State Pension would have increased by 1% for every five weeks you had deferred, or an extra 10.4% a year. For every year you deferred receipt, you are an extra £681 better off.
Although the increases are typically paid as part of your State Pension when you eventually take payment, you may also opt to receive payment as a lump sum (provided you have deferred your pension for at least a year).
Is it worth it?
An article in the Financial Times on the 4th of October 2018 looked in closer detail about whether the apparent benefits of deferral are worth you continuing to pay contributions towards your State Pension.
Acknowledging that the calculations are complicated, the Financial Times suggested that, for anyone who reached State Pension age before the 6th of April 2016, the effective payback on deferring receipt of the pension for a whole year is only achieved after nine or ten years’ once it is in payment.
For those who reach State Pension age after the 6th of April 2016, the payback period is even longer – some 17 years’, suggests the newspaper.
Whether it is worth taking that risk of deferred payback, of course, all depends on your life expectancy – which is longer in London and the south east, for example, than it is in Scotland and the northeast.
The data used in this article is correct at the time of writing