Should I take delayed state pension as lump sum or bigger income?

IN NOVEMBER 2014, on reaching 65, I deferred receiving my state pension. With the government scheme promising a return of 10.4 pc on the accumulated amount and a weekly pension, it seemed a ‘no-brainer’.

I am also receiving a local education authority and teacher’s pension.

Could you advise me whether to take the three years’ accumulated amount as a lump sum or to start taking my state pension at the new rate. Which would be the most advantageous?

I.M., Bristol.

Without knowing your overall financial position, it is impossible to advise one way or the other.

however, i asked Malcolm McLean, senior consultant at actuaries Barnett Waddingham and state pension guru, to provide some pointers.

he has assumed that after a life in teaching and at a local education authority (LEA) you get the full basic state pension but no state top-ups such as Serps or the second pension. he supposes you are a basic rate taxpayer.

the first thing to make clear is you can choose a taxable lump sum or an uplift to your pension. the lump sum will be the deferred pension boosted by the Bank of England base rate plus 2 pc — so 2.5 pc for most of the period.

Expect about £20,000, taxable at your usual rate. it cannot, under the rules, push you into a higher tax bracket.

if you opt to receive an enhanced pension then you will benefit from the 10.4 pc annual uplift, plus inflation based on the Consumer Prices index.

this should push your basic state pension up from £122.30 a week to about £165 a week or £8,580 a year. So you will be about £43 a week better off before tax or £34.40 as a basic rate taxpayer.

Mr McLean wonders if you need the lump sum. ‘if not there seems little point in taking it and putting the cash in the bank. however, it might be nice to have a rainy day fund,’ he adds.

Bear in mind the state pension has a triple lock guaranteeing an increase of the higher of 2.5 pc, the consumer prices index or wages inflation. You should break even at about age 76 then receive the higher pension for the rest of your life.

if you’re healthy, hope for a long life and are a basic rate taxpayer you are likely to do better in the long run by enhancing your pension. But the decision is yours.

thrEE weeks ago i featured a letter on inheriting the state pension. Many readers asked how the correspondent’s wife managed to accumulate a full basic state pension when she had not worked for most of her life.

Well, the answer is two-fold. First, she benefited from home responsibilities protection. this has, since 1978, provided National insurance credits for, among others, parents of young children.

Secondly, she benefited from excellent planning and advice from family members to always pay your full ‘stamp’ in order to get the full state pension.

So although Mrs M was not working, they paid voluntary contributions, when necessary, to build a full pension.

I MADE a payment to a Barclays account in error. I meant to pay it into my own account from another at Santander. It happened as I had a payee set up called ‘Barclays’ and sent it there. This account involved a debt my son had years ago.

My son and I wrote to Barclays trying to get the money back. I found the sort code was for the bank’s risk operations centre.

Barclays say they cannot help as this is a separate arm.

Mrs P.G., by email.

WELL, i’ve got your money back but i think Barclays needs to look at its processes.

As the money was paid into a Barclays account it should not have been hard to trace. You may feel someone simply could not be bothered and fobbed you off.

Barclays has returned your £100 and added £50, recognising that your query should have been better handled.

I INTRODUCED my brother-inlaw to Nationwide expecting to get £100 each, as offered in their promotion. I used my brotherin-law’s email address as I am not au fait with computers.

All seemed in order and, also, my brother-in-law introduced his wife (my sister) to the bank.

I was then told by Nationwide, through my brother-in-law, they would not pay the incentive as we had used his email address, not mine.

S. S., Essex.

NAtioNWidE tells me the recommend a friend scheme has been designed to be completed electronically by both members.

this is to ensure both parties have agreed to the offer’s terms and conditions and that Nationwide has specific consent from each about the way it captures and uses their data. it also minimises work in branches.

Nationwide has now manually matched your referral to your brother- in- law’s successful current account opening and has arranged for each of you to have £ 100. it has also offered you £50 compensation.