From the age of 55 you can have possible access to a defined contribution pension, but you don’t have to use it if you don’t have need for it and lead a still comfortable life or you could have other personal reasons you may want to defer your pension, perhaps more savings security or just aren’t ready to utilize or claim your pension just immediately. Here’s what you can do, you can defer your state pension in return for increased payments in the future.
What Is A Deferred Pension Exactly?
Deferring a pension or a deferred pension simply means delaying your rightful access to the funds you have accumulated in your pension during your years of active service until the future, ie later in your retirement or age.
Reasons People May Defer Their Pension
1. To Build Up
One reason people defer their pension is to allow it the opportunity to hopefully build up a little further to provide a higher income in the nearest future. By deferring your state pension, your future weekly payments can increase – however, you will need to work out if it’s likely to make significant financial changes like you desire.
2. Still Earning
You may still be earning a sustainable income except if you work in the civil service where there is an age limit or similar company. Else, it is up to you to decide when to retire which is why you may not have a need to withdraw your pension funds just yet.
3. Rely On Other Savings
In this case, some people may have had other forms of savings they might rather dig in on when the need arises instead of their state pension. Hence, they save up their workplace or personal pension through deferment for future use. Also, since pensions can be tax-efficient it can be a good reason to leave them untouched, especially if you have other forms of savings you can spend first. Yet, we recommend that you give this a close thought, whether or not using your pension and savings is for a greater good.
4. Transfer To Love Ones On Occasion Of Demise
People may want to transfer what their pension funds have accumulated to on the occasion of their demise to their families or loved ones, if they die before 75 and haven’t touched their workplace or personal pension, this can be transformed tax-free on to your chosen beneficiaries.
By leaving your pension untouched, you are giving it longer to grow and the potential to deliver a larger income when you do eventually retire. Equally, however, by leaving your pension invested, there is also the danger that its value could fall.
Note: You can only defer an untouched pension, this means once you begin to tap out an income from your pension, it is likely to restrict the level of future contributions which allows you to receive pension tax relief to an estimate of £4,000 a year.
Can I Defer My pension?
Yes, you can but mostly this happens with pension type, and the individual rules of your pension scheme. Which you do not know can find out from your pension provider to know how theirs work, their terms and conditions. Will you lose any income guarantees or perhaps incur additional charges if your pension is deferred?
If they are rules against deferment, you could transfer your pension to another provider that will only after thinking things through and seeking financial advice too especially in the case of a defined benefit or final salary.
Advantages Of Pension Deferral
- Allowing your pension more time to build up potentially.
- You may be getting tax relief on those payments while still being paid by your employer.
- You may enjoy higher annuity rate as you get older, than if you buy an annuity at a younger age
- You can pass your pension to beneficiaries rather than cash savings and with tax benefits.
- By delaying your state pension, you could qualify for larger weekly payments in the future and can also call for a halt to the state pension payments that you already receive which may likely increase your future payments, but this can only be done once.
Disadvantages Of Pension Deferral
- While you may opt to defer your pension to give it more chance to build, if the stock market or shares where your pension is invested falls in value, it will affect the value of your pension as well.
- You may miss out on valuable benefits and guarantees if your pension is deferred past certain dates, as set out in the rules of your pension scheme.
- If your pension value grows too large, it may exceed your lifetime allowance and cause a tax levy.
- Also, deferments of your pension funds for too long may mean that you won’t enjoy the full benefits as you should have in a younger age.
How Can I Defer My State Pension?
To start out receiving the state pension you are either required for a completed and returned form to the Pension Service or an online application, which you will receive at least two months ahead of reaching your state pension age.
Therefore, deferral of your state pension, can be simply done by holding off laying claims until your payments start. But, it is different if you are in receipt of certain state benefits, which does not permit you to accumulate additional state pension. As a result, if you receive any of the following and want to defer, you must contact the Pension Service:
career’s allowance, income-based jobseeker’s allowance, income-related employment and support allowance, universal credit, pension credit, income support, severe disablement allowance, unemployability supplement widowed parent’s allowance etc. If your spouse or civil partner receives any of this, it will also prevent you from receiving a higher state pension in the future.
