02 March 2016, 00:00
Almost 1 million boost income by deferring state pension
• Women nearly twice as likely as men to defer their state pension (13% vs. 7%)
• Half use deferral to top up their weekly pension (52%), while a quarter (24%) opt for lump sum
• Perk will become less attractive in April when new state pension is introduced
One in 10 people who’ve reached state pension age (9%)1 - equivalent to 914,000 pensioners – have boosted their state pension by delaying when they take it, according to new research released by Saga Investment Services.
The study, conducted ahead of introduction of the new single-tier pension, found that of those that have deferred their pension, almost half (49%) have done so for up to two years. Surprisingly, one in 10 deferrers (13%) have put off taking their weekly state pension for five or more years.
More than half of the deferrers surveyed (52%) have used deferral to top up their weekly pension, reporting an average increase of £22 per week. One in 10 (10%), however, are currently enjoying a boost of £70 or more per week by deferring.2
A further quarter (24%) chose to take the additional amount as a lump sum– an option that will no longer be available when the new state pension is introduced.
Half of respondents (53%) used the money to top up their savings accounts. One in 10 also used their money to make improvements to their home (13%) and pay off their debts (11%). Only 9% used this lump sum to grow their money further by investing it in the stock market. One respondent used the lump sum to repaint their narrowboat, while another gave it to their daughter as a wedding gift.
Women were almost twice as likely as men to take advantage of deferral (13% vs. 7%) – suggesting that women have made the most of deferring while working past their lower state pension age. Indeed, people of pensionable age who continue to work were much more likely to capitalise on the option (34% vs. 8% of fully retired people), no doubt using deferral to boost their eventual income once they leave the workplace.
How much can you get by deferring – and how is it changing?
For those that qualify for the state pension before April 2016, the perks of deferral are very generous. People who opt to top up their weekly pension can increase it by 1% for every five weeks they defer, equivalent to 10.4% per year. Those who opt for a lump sum must defer for at least a year, and the amount deferred is increased by the Bank of England base rate plus 2%, currently 2.5%.
However, those qualifying for the new single-tier state pension will see the perks of deferring reduced, due to the fact that the new state pension will be higher than the current basic state pension. The lump sum option will no longer be available, and the weekly top up option will increase the state pension by 1% for every nine weeks deferred, equal to 5.8% a year.
New research carried out by Saga Investment Services below shows the difference in growth rates between the current and new deferral deals.
Fig 1: Increase as a result of deferring the basic state pension under current and new rules3
Saga Investment Services also surveyed people who qualify for the new single tier state pension. While only 7% said they would consider deferring when they collect their state pension, one in four (23%) people mistakenly believed they’d be getting the same deal as those who had already deferred their state pension.
Gareth Shaw, head of consumer affairs at Saga Investment Services, said:
“The state pension is the bedrock of financial planning in retirement, and for those that have been able to afford to hold off collecting their pay, deferral can generate a significant income boost. Our figures show that it takes around nine years for someone to recoup the state pension they’ve deferred – and with average life expectancy of a 65 year old now 84 for a man and 86 for a woman, deferring has been a good deal.”
“However, deferring under the new state pension is far less attractive – we found that it would take more than 17 years to earn back the money deferred. Therefore, people will need to think very carefully about whether delaying the state pension is the right thing to do. Deciding how to manage your state pension alongside your other retirement savings should form part of an informed discussion with a financial planner.”
Some guidelines for deferring your state pension, include:
• You can defer your state pension even if you've already collected it, but you can only do it once
• The lump sum option is subject to income tax - and set at your current income tax rate. It will not be available under the new state pension rules
• You won't benefit from growth in your state pension on days when you're in receipt of other benefits
Notes to editors
1. Populus, on behalf of Saga, based on a sample of 8,555 people, all aged 50+ carried out between 5 and 11 February 2016. Populus is a member of the British Polling Council and abides by its rules. Extrapolation to Great Britain population aged 50 and over and uses ONS mid-year 2014 population estimates.
2. Weekly increases reported as follows: 40% receiving up to £10; 27% receiving between £11 and £20; 10% receiving between £21 and £30; 6% receiving between £31 and £40; 5% receiving between £41 and £50; 1% receiving between £51 and £60; 3% receiving between £61 and £70; 2% receiving between £71 and £80; 1% receiving between £81 and £90; 1% receiving between £91 and £100; 3% receiving more than £101;
3. Amounts gained under the state pension under current and new rules
About Saga Investment Services
Saga Investment Services has been developed to open up the world of investing and financial planning to the UK’s over 50s in the run up to and throughout retirement, and to make the process as simple and stress-free as possible. Customers can invest from just £100, and have access to investment advice and financial planning services. Saga Investment Services champions a straight forward and transparent approach to investing, and is a proud member of the Plain English Campaign. It is a joint venture between Saga, the leading provider of services to the nation’s over 50s, and Tilney Bestinvest, the expert investment and financial planning group.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested.
This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance
The decision to access your pension is an important one and will affect your income and possibly your standard of living for years to come. In light of the new pension rules, before any decision is made on how you access your pension, we recommend you receive regulated financial advice or get free guidance from Pension Wise (www.pensionwise.gov.uk).