PENSION POT LUCK
Financial worries or just looking for better value for money? Consumer champion Fergus Muirhead can help
QI WATCHED a programme on BBC TV that you are sometimes in called Right On the Money. The pension expert told the 65-yearold man that he would be better to defer taking his state pension for a year if he can to get an extra 10.4 per cent. I do not agree with this expert as it was not pointed out that it would take about 10 years to break even. He would be 76 years old. Also this 10.4 per cent is now reduced to 5.8 per cent as the Government think it was too much taking 17 years to break even. If still alive you would be 83 years old. My advice is to take your state pension as soon as you can. Do you agree? Alan Taylor, Livingston
ATHIS is a question that I am being asked more and more these days. You are right when you say that you don’t have to take your state pension as soon as you are entitled to take it – plus the age at which you qualify is changing. If you are uncertain when you’ll qualify, you should have a look at www.gov.uk. You can also use this website to check how much state pension you will be entitled to when you reach state pension age, and whether you can do anything to fill any gaps because you had years when you did not make National Insurance Contributions.
But back to Alan’s question, and the benefits of deferring your state pension.
As you rightly say, the level of pension increase that you will benefit from is being reduced from 10.4 per cent to 5.8 per cent and this means that you will need to receive the state pension for 17 years before you break even, instead of the 10 years that it would take under the current rate of increase.
This is one of these questions that has no right or wrong answer. It really is down to personal circumstances and whether, to use the old proverb, a bird in the hand is better than two in the bush.
If you need the extra money now then it makes no sense to defer taking your pension no matter how much extra you will receive in the future.
If, however, you have sufficient income coming from other sources – perhaps from other pensions from your employer or because you are still working and earning enough to live on – then you may decide that a 5.8 per cent increase yearon-year is more than you would get if you invested the money somewhere and on that basis it would make sense to defer
taking the state pension until you really need it.
On the other hand, you might decide that, even if you don’t really need the money, you would be better taking it and putting it in your bank account rather than leaving it in the Government’s account and letting them benefit from it. That might be a sensible response as well.
And of course your health is important as well. As Alan mentioned, you would have to live until you were 83 or so in order to break even if you defer your pension for a year.
If your health or your family history suggest that is unlikely then perhaps in your case the bird in the hand is a good bet.
If, on the other hand, your family all lived into their 90s then you might prefer to take a chance and defer for a bit.
Like everything that we say on these pages, it really is about looking hard at your circumstances and deciding what is best for you at the time.
There is no “one size fits all” to a lot of the money questions that we answer here, which is why some of the answers at times might sound a little vague.
What is right for Alan, who asked this question, might not be right for other people reading this answer so it’s important to mention as many options as possible and to make sure that each of you understands the importance of making up your own mind before making a decision.
The way you look after your money, and the decisions you take to make sure that you are using your money wisely, is a very personal thing and you can only generally make a decision once you know all of the facts.
So the starting point is often to sit down and have a long hard and honest look at your finances.