APPROACHING THE STATE PENSION AGE – THIS CONCERNS YOU!
When to draw your state pension is a big decision. A much bigger one than people think. It isn’t just a case of reaching age 65 and then turning the tap on from the state regardless.
We at Oyster Financial Planning have clients who have taken the decision to defer their state pension to benefit not only from the increased pensions that can be gained by deferring but also to save paying unnecessary income tax, if they are working on past age 65 for example.
Deferring for just two years can have a significant impact on your financial position in retirement, this is something we can discuss with you if you wanted to understand the impact of deferring or taking straight away. Our Aspire Lifestyle Financial Planning service covers this very well in an easily understood fashion.
Says Michael Osman, Managing Director & Lifestyle Financial Planner at Oyster Financial Planning Ltd and Creator of SO45 Online
The text below refers to some of the changes proposed by the Pensions Minister, Steve Webb.
THE PROPOSED CHANGES – A NEED FOR ADVICE!
The Pensions Minister, Steve Webb has confirmed that the relative attractiveness of State Pension deferral will be curbed in recent responses to the Public Bill Committee on the Pensions Bill 2013.
In his introductory remarks Mr Webb commented “The way in which the deferral increments are worked out means that there is an extra percentage on the pension when it is drawn, while the way in which the lump sum is worked out is different and, bizarrely, relates to the Bank of England base rate. There are times when, if an actuary were making such a decision, the person should choose increments and there are other times, depending on interest rates, when the person should choose the lump sum.”
The Minister confirmed that the lump sum option is to disappear from April 2016, although he chose the political explanation that the government would “make the process [of pension deferral] more simple.” Unsurprisingly, the future increase rate for deferred pension is not in the Bill and neither was Mr Webb going to commit himself to a specific number. What he did say was “we believe that the right figure would be in the order of 5% although a lot depends on changes in longevity and so on.” The current level is 10.4% and later on Mr Webb gave a further explanation that pointed to a halving of the present rate (i.e. 1% increase per 10 weeks deferral).
5.2% a year is still not a bad deal. For example, the new increment basis implies an extra £5.20 a week for each year’s deferral of a £100 a week state pension. That extra £5.20 a week for a single person aged 66 (i.e. 65 + 1 year’s deferral) would cost about £7,600, assuming RPI linking, against a year’s pension foregone of £5,200.
Mr Webb accepted that one justification for the change was ‘certainly financial’. Without it, ‘in 2020 the [single-tier state pension] scheme would cost another £200 million a year and in 2030 another £300 million a year.’ He felt that such sums could be ‘put into bits of the system where I think we would all agree we really want it.’
REMOVING THE JARGON
A lot of the middle part of this article will be financial jargon to a lot of you, our Aspire Lifestyle Financial Planning service makes the decision to defer or take your benefit very easy to make.
This is the case for many different big financial decisions we all have to make in our lives. To find out more please just get in touch with me on the contact details below.
Thanks for your time in reading this article, if you would like to discuss any of the above please feel free to contact me on 023 80848410 or email Michael@oysterfinancialplanning.co.uk and pop into our office on Hythe Marina for a coffee and a chat.