Will our children work until they’re 75?

Both my (elder) brother and my (younger) wife sent forms to The Pension Service stating they were deferring their state pensions. And both subsequently received PAYE Coding Notices which on the reverse under Notes 3, stated “We know you receive the state pension or another taxable state benefit and we have estimated you will receive £nnnn this year.” It goes on that because it’s not taxed at source they (HMRC) have to obtain the tax due.
In my wife’s case, they calculated that she owed tax from 2011-2012 and they gave her a tax code to recover the amount owed as well tax on the pension for 2012-2013. She phoned HMRC and the problem was apparently resolved; she got a revised code for 2012-2013. However, on her first pay slip afterwards, her employer had used the incorrect Tax Code; on enquiring they stated they hadn’t received the revised code from HMRC. Another phone call to HMRC to chase this up. The next pay slip still used the incorrect tax code; again her employer hadn’t received the new code from HMRC. So she is now owed probably about £800 in overpaid tax, give or take.
It is clear there is no communication between the two government departments involved. It seems they automatically assume you’re taking your pension and rely on you to contest the fact.
Yet another example of inefficient government bureaucracy, which we are all paying for.
I’ll let you know if her next payslip has the correct tax code!

I deferred my state pension as I was getting sufficient with my employment pension and returns from a hobby of about £3000 a year. After 18 months, I thought from articles I read that I wasn’t gaining anything by deferring. However, after a good year giving me another £1000, this raised me just above the lowest tax limit that we pensioners are allowed (I forget what they call the figure). Income tax was applied disproportionately, which gobbled up most of the extra cash I’d earned. It therefore seems I would have gained by continuing deferment, and note from this Which? report that I can get a second chance to defer, which I was not aware of before.

You have to bear in mind that the uplift for deferring your state pension is calculated using simple interest, not compound. So if your pension would have been £100, delaying it 12 months makes it 10.5% more, or £110.5 – for many people a decent return. But if you defer another year you get another £10.5, which is only 9.5% more than you could have had at the start of the year. Defer a third year and the uplift is only 8.7%. And so on. So don’t defer too long (unless you live in Australia, but that’s another story).

The comment is misleading – as I understand it your pension entitlement increases by 1% for every 5 weeks deferral – delay by 6 months and your pension will be approximately 105% of the initial amount.
It is not interest.

Yes it increases by 1% every 5 weeks – 1% of the original entitlement at pension age, not 1% of the entitlement at the start of the 5 week period. So you get compensated 1% for deferring the first 5 weeks. At that point you could collect £101 rather than £100. Wait another 5 weeks and you could collect £102, that’s compensation of 0.99% of the £101 you could have had at the start of the 5 week period. And so on. In other words, looking at it in purely financial terms, the attractiveness of deferring another 5 weeks diminishes rapidly over time.

I retired at 59 with a private pension that I thought was adequate but have not had an increase since, so the time is coming when I will need extra money. I have deferred my state pension (I am now 68) on the basis that I will manage for as long as possible on my existing pension. I calculated a break-even point and it came out that one needs to survive for at least 10 years after commencing to take the deferred state pension in order to make a profit! So decide when you are going to die and take the pension 10+ years before! However my reasoning is a little different. By deferring as long as possible I will get the maximum possible pension when I eventually need it and if I die before the 10 years are up my problems are over anyway.

I think it is awful raising the age of when you can leave work. I know why they are doing this because of the majority of people living longer, but what about the others who don’t get to live out their life. I am in my 40s and have always thought how important it is to enjoy retirement whilst hopefully you may still have your health and sad if you were widowed sooner in life when you thought you would be sharer it with your partner together. I agree with everything Richard has said in his email and that is how it should be when you have given much of your life to working. I got arthritis 5 years ago, I realise what it is like to suffer and not have quality of life, having to see how you will be on the day before committing to those fun occasions. Thankfully I am on good mediation now and my health is great, but has made me realise even more so how awful the way this government s going with raising the age for retiring. I think those who are that age should have the choice if they wish to continue to work or not, they have given much to society, don’t rob them of their time left if they want to retire. By those retiring earlier means more jobs for young people, the government seems to be forgetting about how important that is.

On a separate note, the NHS has made changes to their pension and does not correspond to this things you speak about in this attachment. It asks you to pay more money in to your pension and extend it on so you are also working longer, you do have choice to not go with that option, but means your pension will be less. ‘Which’ if you get the chance please do take a look, it really is not good.

Is it too late to comment on this?… PabFormby was surely correct in writing “if I die before the 10 years are up my problems are over anyway.” The ‘break even’ point is not important unless your legacy is a prime consideration or you’ve made your life a misery by not claiming the pension when you really needed it and the point where you might justify your discomfort by breaking even seems a long way off.

However, it must be assumed that you have considerable savings and/or another source of income, otherwise you’d wouldn’t be considering this as you’d have no alternative but to take the pension ASAP. So on that basis would it make sense to defer? I was just running through the figures for my own situation, based on an anticipiated state pension of £6188pa and defering for two years. The way I’m looking at it, which seems different to everyone else’s so possibly based on a lapse of reason, is…

If I spent £6188 of my savings each year [OK a bit more in the second year but I’m going to ignore that] I wouldn’t notice not receiving my pension, well, as long as I didn’t look at the savings passbook. After two years my reduced savings would bring in £371pa less, assuming an interest rate of 3%*. However my pension would be £1287 more, so I would be I’d be £916pa better off. I think I’m already convinced, but what makes it even better value is that the increased pension will keep up with inflation, give or take, whereas if I were relying on the income from savings instead, those savings would be dwindling away in real terms value. If, and it’s a huge if, I were to live for forty years after retirement, the missing income from the £12k I spent would by then be barely noticed but my enhanced pension would still be worth 20% more than the basic pension would have been. Just think back to how much further the pound in your pocket went forty years ago, when 2p would buy you a Mars Bar. It strikes me that reducing my savings as far as possible without reaching the point where I’d be worrying about not having enough in reserve to cope with the unexpected, allowing for inflation eroding their value before I died, has to be the best bet. Especially as my income would be so much more that those unexpected emergencies might seem less daunting anyway.

It’s hard to get past the apparent problem that though I might have a little more income, I have a lot less savings, but if the savings are only there to provide income – as is the case for me – and you have more income by spending them then it makes sense.

* If savings rates were higher the sums wouldn’t look so good but inflation would presumably be higher too so your savings – I’m still assuming the choice is spend savings or take the basic pension – will erode more quickly too, so I think the argument stands, just skewed to be more convincing the longer the timescale, if less so in the short term.

The decision will be complicated for others by considerations of a partner or perhaps children, their health, and questions of moving into a higher tax band, but in my case there’s no-one to account to and the 40% rate is a distant dream even before retirement, and I doubt hitting the 20% rate would alter my conclusions. At present it looks a no-brainer, but I’m just idling away an empty hour and it’s ages til I have to decide. I was looking at a six year old discussion on this topic and the calculations come to different conclusions to today’s, being based on a base rate of 5% and savings earning up to 11% [!] they were recommending the lump sum alternative, so I guess there’s no point planning too far ahead.

And yes, I didn’t allow for the interest I’d lose in the years I was spending my savings rather than taking a pension but that would be recouped in the first six months of enhanced pension in my two year example.

I see that defering the assumed future £140 pension for 5 years would bump it up to over £11,000pa. Hmmm….

Any thoughts?

Hmmm… Just realised that this is too complicated for my tiny brain. I argued that, roughly speaking, spending/giving up 12k would give me 1k pa more income and that would be a good deal. What I failed to consider is that if I’m happy to spend 12k then why not spend it a bit at a time, so I could spend £916 pa, but from savings rather than income, for 13.5 years before being worse off. Unless I’ve missed something else, that’s longer than Ian Robinson’s 9.6 years break even point because he didn’t allow for the extra income you’d earn from having banked your pension; I assume if you’ve defered taking it you didn’t need it and haven’t spent it. I’m just confused now, but can see why the general recommendation for men is no more than a couple of years. How different inflation, interest and tax rates skew the equation is so far beyond me I haven’t a clue as to which way to go – so much for the ‘no-brainer’ I initially thought this was! I guess your personal view of saving and spending would make a difference – you might dread eating into your savings yet be happy to spend all your income. My gut feeling is now that it is only really worthwhile if you expect to live for a long, long time after retiring – and I thought I was on to a good thing.