take pension or postpone?

Her state pension if left unpaid will earn increments, which effectively means the government increase your pension level as an incentive for you not to claim your pension. This can only be done for up to 5 years and there is a minimum period (i think it is 13 weeks but you can check with the pensions agency) . The main problem with this is you are gambling on living long enough to make back the cash you haven't received during the 5 years. So if your family is naturally long lived you will probably make a profit out of it and of course you should have made a tax saving during this period. Plus she can claim her pension at any time during the five years and it will usually be backdated for up to 3 months from the date of application if she requests it. As an alternative it might be worth your friend looking at how much pension she is due, alot of ladies who have been married may not be due the full amount of basic pension possible and seeing if she can reduce her hours at work as well to end up with a total income figure under her tax limit ( I assume she has no other savings or income otherwise she would be happy to leave her state pension where it is). If she reduces her income she would probably be able to claim council tax benefit which would reduce or even cancel her council tax bill. Plus she may qualify for some pensioner credits as well. I suppose it depends on whether she prefers to continue working and paying tax, or will claim the benefits available and retire. If she enjoys work great, but I know after years of paying out in tax I would be looking to retire as soon as I can afford it! al

In article , Al Green writes

She will continue working irrespective of taking the pension. It is a full one but that's still pretty meagre. The nub of her problem is that she wants to build a nest egg in case of future emergencies. I wondered if there was a formula to work out whether drawing and investing the pension to achieve this over five years was a poor idea.

I used to work for the DWP and once did a calculation of this type for a lady, but we had tables to work out the incremental increases. Increments are about a flat 7% over the year so we were told. In the particular case we looked at it would have taken around 9 years to make back the cash she could claim. But she wasn't on a full pension. Also the trouble is the yearly increases on pension are based on inflation, but in recent years extra amounts have been awarded by mr brown to avoid the 75p on a penison mess a few years ago. She could contact the pensions agency and ask for an estimated calc, but it might depend who she gets hold of as to if they can do it for her. At the end of the day any calc will be based on at lot of assumptions about pension increases so would be virtually impossible to complete. ali

In article , Al Green writes

Thanks. I've told her to consult her union-retained IFA but I suspect she will draw the pension and stash it. She is one of those people who gets more satisfaction from seeing an accumulating capital stash than with a promise of better future income.

I understand the feeling. I know that real interest rates are far below investment returns but I get a warm glow logging on to deposit accounts. I think it is because we come from a background where no-one could accumulate wealth because they lived hand-to-mouth. The idea of having a stash was beyond my parents and grandparents. They died owning nothing but furniture and clothes.

Maybe that is why the urge to own property is so strong in the UK.

"Al Green" wrote

Actually 1/7 % per week, IIRC. [So nearly 7.5% per year.]