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To defer or not to defer - you decide

Deferring your pension is becoming a popular option

Are you sick of hearing about ‘it'? You will not hear about ‘it' – the virus, I mean - in this column. Concerned as we are, this column is an it-free zone.

Instead, let us show a wonderful thing – a way you can make money by doing absolutely nothing.

Did you know you can boost your income in retirement, by delaying or ‘deferring' your state pension?

When your time comes for the basic state pension, you can choose not to take it for a while. The longer you defer, the more per week you will eventually get.

This is because those cheery chappies at the Department for Work & Pensions, actuaries buried in some cobweb-ridden dungeon deep in the bowels of the civil service, spend their time working out when we are going to die.

I like to call them the ‘coffin boffins', and they do very intricate calculations to work out how long we are likely to live. They know that average life expectancy in Northern Ireland is now 78.7 years for men and 82.4 years for women. So if you defer your state pension, then you'll be drawing it for less years than you otherwise would – and that gets you get a little more per year.

Isn't the government always so generous, when they're giving us back our own money?

Right. Now we get to the big, bottom-line question.

How much extra would I get, if I chose to defer? Well, it's a percentage, so it would depend on how much you're entitled to in the first place.

The amount of state pension you receive is based on your national insurance history. To receive anything at all, you have to have paid at least 10 years of national insurance contributions. To receive the full new state pension, you need to have made 35 years of contributions, which this year would give you £168.60 per week (although it's going up to £175.20 next month).

If you contributed more than 10 years, but less than 35, your amount will be less than that £168.60, decided on a sliding scale.

For people who reached the state pension age on or after April 6 2016, your state pension increases by the equivalent of 1% for every nine weeks you defer. This works out at just under 5.8% for every year.

For the sake of this example, let's take someone who is entitled to the full amount, but chooses to defer their state pension because, for instance, they aren't ready to give up work just yet and can live quite happily on their salary alone.

If you defer for a year, that's 52 weeks and your £168.60 per week would rise by an extra £9.74 per week. So after deferring for a year, you'd have increased your state pension to £178.34 a week. Obviously, the more years you choose to defer, the more you will receive, and the more worthwhile it gets.

It's quite a popular option. Canada Life just got hold of some new government data showing that more than 14,000 people chose to stop receiving their state pension in the 2018-19 tax year.

So when will you qualify for your basic state pension – either to draw it, or defer it? Well, the government has been gradually raising the start time of the SPA in recent years, and plans to continue doing so, so the actual age is bouncing around like a cricket ball, it's a moving target that will depend on your age today.

Here's the skinny on this: as I said, the SPA is set to hit 66 for both men and women in October. It's then set to rise to 67 after 2026, and to 68 after 2044. Newborns this year might not get their state pension until they turn 70, in 2090.

If you're coming close to your state pension age, and you'd be interested in deferring for a while, you don't need to do anything. Your state pension payments don't begin automatically, they only kick in when you start claiming. By not claiming, you are automatically deferring.

Even if you've already started drawing your state pension, you can pause it in order to receive increased payments in the future. You just need to be careful about when you choose to do this, as you can only pause and restart your payments once.

It's easily arranged, and is best done with professional advice. For that, we're here at the end of the phone, even if you're staying indoors this week.

See? We nearly didn't mention the C-word once.

:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information on our Facebook page “Kennedy Independent Financial Advice Ltd” or our website www.mkennedyfinancial.com

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