More than 20% of people have lost a pension pot says expert
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Although people may decide to retire when they reach State Pension age, some opt to carry on working and defer their State Pension payments. Alternatively, some may have other sources of income which may mean it is beneficial to claim their State Pension later. There are financial benefits to deferring payments, but there are also some drawbacks associated with delaying.
How much extra State Pension can you get by deferring?
People who reached their State Pension age on or after April 6, 2016, will see their State Pension increase for every week it is deferred, providing it has been deferred for at least nine weeks.
The State Pension increases by the equivalent of one percent for every nine weeks deferred, or just under 5.8 percent for every 52 weeks.
People who reached State Pension age before April 6, 2016, will see their pension increase for every week deferred, providing it has been deferred for at least five weeks.
In this case, the State Pension increases by the equivalent of one percent for every five weeks it is deferred, working out as 10.4 percent for every 52 weeks.
People who reached State Pension age before April 6, 2016, can take the extra State Pension as a one-off lump sum or in the form of higher weekly payments.
But people who reached State Pension age after April 6, 2016, can only get their extra State Pension paid out with their regular payments.
State Pension: Is it worth deferring your State Pension? Experts weigh in on pros and cons (Image: GETTY)
State Pension: There are benefits and drawbacks of deferring State Pension payments (Image: GETTY)
What are the benefits and drawbacks of deferring the State Pension?
Whether or not deferring the State Pension is the best option for someone financially will differ from person to person.
Zoe Dagless, senior financial planner at Vanguard UK, told Express.co.uk: “Deciding whether to defer claiming the State Pension very much depends on your personal circumstances.
“The amount extra State Pension you could receive also depends on when you reach State Pension age.
State Pension: The State Pension increases when it is deferred (Image: GETTY)
“If you reach State Pension age on or after April 6, 2016, your State Pension will increase every week you defer, as long as you defer for at least nine weeks.
“If you reached State Pension age before April 6, 2016, you can either take your extra State Pension as a higher weekly payment or a one-off lump sum.
“Deferring may mean slightly larger weekly payments, but for every year you defer that’s £9,339.20 in income every year [the yearly full new State Pension amount] you’re passing up – so it may be a few years before the benefits of deferring outweigh the costs.
“For people qualifying for the State Pension after April 2016, the rate of annual increase for deferring fell from 10.4 percent to 5.8 percent, making the defer offer with State Pensions less attractive.”
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Romi Savova, PensionBee CEO, told Express.co.uk someone may find it beneficial to defer their State Pension if they still have other sources of income when they reach State Pension age.
She said: “Savers who wish to claim their State Pension as soon as they are eligible will obviously benefit from access to additional cash to spend during their retirement.
“For those savers receiving the full State Pension amount of £179.60 a week, this may provide a significant financial boost depending on individual circumstances.
“However, as the State Pension can’t usually be taken until around a decade after workplace or personal pensions, there’s a chance that some people might not need to access it immediately upon reaching the age of 66.
“If a saver has a retirement income from other sources or is still working, it could be to their financial benefit to defer receipt of the State Pension.
“Delaying the State Pension by just a few weeks could result in a higher weekly State Pension amount, or even a lump sum payment.
“As with all pensions, timing is everything and I would encourage savers to only withdraw what they need, at the time they need it, in order to ensure their money lasts well into retirement.
“The longer a saver can afford to delay, the more they are likely to receive in later life.”
When planning for retirement, everyone’s circumstances are different and some may consider speaking to a financial advisor for further advice.
This article does not equate to financial advice.