As I’m sure you know, by deferring something you are pushing it back to a later date. And it’s the same with your pension.
Deferring a pension means that you don’t start taking an income from the age at which you can start withdrawing your pension. Instead, you put it off until you need it.
The most common reason for deferring a pension is remaining in work for longer. If you decide to stay in work past your retirement age or have the savings to cover you for the first few years of retirement then deferring your pension is an option. In doing so, you could increase the income you receive when you do decide to start withdrawing it.
Yes, you can. Under current government rules, you can start withdrawing money from your personal and workplace pensions from the age of 55. Releasing pension money early isn’t right for everyone as it will leave you worse off in retirement. If, however, you decide that you would like to wait and withdraw your pension at a later date then you will need to defer your pension.
If you have a defined contribution pension, then deferring your pension will keep your savings invested for longer. This means your money will continue to grow, potentially leaving you with a larger pot when you retire. When you defer your pension you can decide whether you would like to continue making contributions. If you decided to do so, you will continue to receive tax relief until the age of 75.
If you have a defined benefit pension then there are other things to consider. As the income from this pension isn’t reliant upon investments, deferring this pension will not change the value of it when you retire. However, it could increase the monthly payments that you receive because you are spreading the income over a shorter period. It’s a good idea to first take a look into the pension scheme that you have as this all depends on the provider. Before deferring this type of pension it’s also a good idea to check if doing so would mean forfeiting any income guarantees and benefits. Defined benefit pensions can be tricky to understand, and a financial adviser can talk you through the type of pension you have to help you make the right decision.
You can also defer the State Pension. Currently, the State Pension age is 66 for both men and women. If you reach this age and decide that you don’t need to receive an income from the State Pension just yet, you can defer it.
By deferring the State Pension, you will get a higher income based on the amount you would have received plus interest. And delaying the receipt of the State Pension for more than a year could also make you eligible for a lump-sum payment.
The level of State Pension you’re entitled to all depends on the amount of National Insurance contributions you’ve made. If you haven’t made enough to be eligible for the basic State Pension or the new full State Pension, delaying receiving an income could help to improve your contribution record.
Everyone’s circumstances are different so there is no one size fits all answer to this question. Whether you should defer your pension all depends on your personal retirement plans and your financial situation. If you are unsure as to whether this is an affordable option, speaking with a financial adviser would help you understand what deferring your pension could mean for you and if this is the right choice for your future.
We can help you make the best possible decisions when it comes to your pensions. We are authorised and regulated by the Financial Conduct Authority.