I am due to start receiving my state retirement pension. I understand that if I defer claiming this for at least 7 weeks I could get a highter rate. Is there some table/formula available anywhere so that I could calculate the best options, i.e take the pension straight away and, should I continue to work, to pay tax on this. Defer the pension until I finish work (about another year) and the amount I receive will compensate for year's lost os pension (minue tax)
As far as I remember off the top of my head you receive an extra 1% of your pension for every 7 weeks you defer it for - which works out at 7.5% extra for each year deferred. It used to be that you could only defer receiving your pension for a maximum of 5 years, but this may have changed to no upper limit.
While initially it might sound a good idea to defer your pension I'll give an example of how it works...
Just say you were entitled to a state retirement pension of 50 a week. If you deferred this for one year your pension would have increased to 53.75 a week (and if you deferred it for 5 years it would increase to 68.75). However, to receive this increase you've effectively missed out on receiving your pension for 1 year, which would be 50 a week for 52 weeks = 2,600. So, really, its costing 2,600 to get an extra 3.75 week pension, which means you'd need to be receiving your pension for just over 13 years to gain that money back. Similarly if you deferred for 5 years it would cost you
50 x 52 x 5 = 13,000 to get an extra 18.75 a week.
This is just a relatively simple idea of how it works, this doesn't take into account other things like any tax you may pay etc.
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