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Why Defer Your State Pension?

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From 6 April 2016 a single tier state pension of around £155 per week will replace the current basic state pension of just under £116 per week plus the various additional elements. However if you reach state pension age before 6 April 2016 then you will be able to add to your current expected State Pension by putting off (deferring) claiming for at least 5 weeks.


Up until 6th April 2016 State Pension will increase by 1% for every 5 weeks deferral, working out to be an increase of 10.4% for every full year of deferral.


Example
Jenni has worked and gained credits towards her state pension for the required 30 years and would get the full State Pension of £115.95 per week which is equivalent to £6,029.40 a year. By deferring for a year, Jenni will get an extra 10.4% of £6,029.40 making a total benefit of £627 per year, every year going forward.
But when the new state pension kicks in on 6 April 2016 this attractive rate is almost halved and from April 2016 should you defer your state pension you will only get the increase of 1% for every 9 weeks you put off claiming. This works out at just under 5.8% for every full year of deferral.


Example
Julie has worked and gained credits towards her state pension but has not acquired credit for the required 35 years. As a result she gets less than the full State Pension, let’s say she is entitled to £120 per week which is equivalent to £6,240 a year.


By deferring for a year, Julie will get just under 5.8% of £6,240, a total of an extra £360 per year every year.


This reduced rate of increase to your pension means that should someone choose to defer for one year they would need to survive for around 19 years in order to benefit from making the decision.


The primary reasons for deferring taking a state pension will be where someone is not reliant on this and is holding off in order to get a better pension, or where someone works past state pension age and wishes to manage their tax liabilities.


You may also have noticed that the number of years required to work or gain credits for national insurance contributions has increased from 30 to 35 years.
If you are nearing state retirement age or are just interested in obtaining a projection for the future then please speak with us on 01270 250800 or email us at info@alextragroup.co.uk .