Retirees who will reach State Pension age before 6 April 2016 could lose a combined £11.9bn of extra income by failing to defer their State Pension, new research from Fidelity Worldwide Investment shows.
Those retiring before this date can currently defer their State Pension under generous conditions where they receive a one percent uplift to their income for every five weeks of deferral. This totals to an income boost of 10.4 percent every year.
Alan Higham, retirement director at Fidelity Worldwide Investment said:
“The new private pension freedom rules can be used to help people secure a better retirement in a number of ways. Those reaching State Pension age before 6 April 2016, including those who have already retired, can benefit from generous terms to defer taking their State Pension.
“Everyone started to receive a State Pension within the last 10 years or due one before 6 April 2016 should consider carefully whether it is possible to use other assets to suspend or defer taking State Pension and to consider whether this option is best for them. People need to bear in mind that the Government could reduce the rate they pay at some future point so the decision to defer should be kept under review in case the terms do change.”
In a freedom of information request submitted by Fidelity to the DWP, figures show that for the six months to February 2014, just under 270,000 people started to draw State Pensions, of which only 23,000 were people who had been deferring, while 247,000 (92%) drew the pension immediately.
Compared to those who draw their State Pension immediately Fidelity estimates that, by just deferring for two years, individual retirees with sufficient resources could get an additional £18,800 over their lifetime even after spending the necessary funds from their private savings. On a national level, this adds up to £5.6bn additional income.
|Number of years deferred||1||2||3||4||5||6||7||8||9|
|Extra income per year (£) over Lifetime||410||770||1,060||1,300||1,470||1,590||1,640||1,640||1,580|
|Extra income over Lifetime (£)||10,100||18,800||26,000||31,800||36,100||38,900||40,300||40,200||38,700|
|Extra income over lifetime for eligiblegroup (£)||3.0bn||5.6bn||7.7bn||9.4bn||10.7bn||11.5bn||11.9bn||11.9bn||11.5bn|
Source: Fidelity Worldwide Investment – see footnote 3 for key assumptions
“The new pension freedoms would now allow someone to suspend or defer taking their State Pension for many years whilst they draw down on their private pension and this option should be discussed with people as they are given guidance on their pension choices. It won’t be suitable for everyone (especially those with seriously poor health) but given the very low numbers of people choosing this option, there is a big job to be done in raising public awareness.
Retirees looking to defer their State Pension should always seek the appropriate guidance or advice as deferring could negatively impact on some other welfare benefits whilst people with no other source of income after State Pension age would not be able to afford to defer taking it.”