When it comes to your state pension, timing is everything, and many retirees wonder if waiting a bit longer is a smart move.
Should you claim it as soon as you’re eligible or wait to get a bigger payout?
While delaying your state pension can lead to a higher monthly income, it’s not always right for everyone.
In this article, we’ll explore how the state pension increases if you delay, look at two case studies showing different approaches, and help you decide the best option for your financial future.
How State Pension Increases with Delay
If you choose to delay claiming your state pension, the UK government offers an incentive: your pension increases by 1% for every 9 weeks you defer. This equates to roughly 5.8% extra per year.
For example:
- If your full state pension is £203.85 per week, delaying by one year could increase it to approximately £215.60 per week.
- Over a 10-year retirement period, that’s an additional £6,100+ in pension income.
However, this benefit only applies if you live long enough to make the delay worthwhile. Let’s look at two different scenarios to see how delaying works in practice.
Case Study 1: Why Sarah Waited
Sarah, 66, in good health and still working
Sarah reached state pension age at 66 but decided to delay taking it. She was still working part-time, meaning her income was sufficient for her expenses. She also wanted to avoid paying higher income tax by adding her pension to her existing earnings.
By delaying for three years, Sarah’s weekly pension grew from £203.85 to approximately £241.30. Since she had a long life expectancy, this decision helped secure her financial future with a higher lifelong income. For Sarah, delaying her state pension was a smart move.
Case Study 2: Why Tom Claimed Immediately
Tom, 66, retired with no additional income
Tom also reached state pension age at 66 but was fully retired with no private pension or savings. His state pension was his primary source of income, and he needed it immediately to cover daily expenses.
Delaying wasn’t an option for Tom because he required the funds to meet his financial obligations. Even though waiting could have increased his pension, the risk of struggling financially in the short term outweighed the long-term benefits.
For Tom, claiming his pension as soon as he was eligible made the most sense.
How to Decide for Yourself
Your decision will depend on various personal factors, including:
- Do you need the money now? If you rely on your state pension for basic living costs, delaying may not be practical.
- Are you still working? If you have other income sources, waiting could provide a higher pension while reducing immediate tax burdens.
- What’s your life expectancy? If you have health concerns or a lower-than-average life expectancy, taking your pension earlier may make sense.
- Do you have other savings or pensions? If you have alternative financial support, delaying might be beneficial.
Conclusion
There’s no one-size-fits-all answer when it comes to claiming your state pension. For those in good health with other income sources, delaying can provide a higher long-term payout.
However, if you need the money now or have a shorter life expectancy, taking it sooner may be the right call. The key is to assess your financial situation carefully and make an informed decision that best supports your retirement goals.
To understand how delaying your state pension fits into your overall retirement plan, speak to one of our experts at Cedar House Financial.
For more advice about your investments, give us a call at 020 8366 4400 or email enquiries@cedarhfs.co.uk.