State pension deferral rate to drop
Pensioners should be aware that the government has set out plans to reduce the annual state pension deferral rate from 10.4% to 5.8%.
Pensioners can choose to defer claiming their state pension when they reach state pension age, and when they do claim it they may get extra state pension.
Currently deferred state pensions increase by 1% for every five weeks a claim is put off. This is equivalent to 10.4% for every full year a claim is deferred.
However under draft regulations set out by the government, when the new state pension is introduced in April 2016, the deferred state pension will increase by 1% for every nine weeks it is not claimed, or 5.8% for the whole year.
These draft regulations are quite a big step change and could have significant consequences for people who were thinking about deferring their state pensions.
With interest rates likely to increase, the deferral rate will start to look like less good value, and pensioners may want to reconsider whether deferring is the right thing to do.
There are also tax implications that need to be considered when someone is contemplating deferring or not. Personal circumstances need to be taken into account such as the rate of income tax which they would pay if they received their state pension now, their personal wealth and even their health.
We would urge anybody considering whether to defer their state pension to speak to their accountant.
For more information please contact Nigel Martin at the office.
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