Should you defer your state pension?
Q: My husband is due his state pension in a few weeks' time. However, he still works on a self-employed basis and won't need to touch his pension for two years. What is the best way forward?
A: Peter Chadborn is a director and co-founder of Plan Money.
If your husband doesn't need the money he should consider deferring his state pension for two years until he stops working. By doing so he'll increase the amount he'll get later on.
One option is to claim an extra 1% for every five weeks deferred. Over a two-year period, this would equate to an additional 20.8% a month. This increased amount will normally be increased annually in line with his original pension entitlement.
Alternatively, as long as he has deferred claiming for at least 12 months, he can claim a taxable lump sum. This will equal the amount of pension he'd have received, plus interest equivalent to 2% above the Bank of England base rate.
The disadvantage of deferring is that if your husband dies, his state pension ceases, so the deferred income will have effectively been lost. However, depending on certain circumstances, you may be able to claim a proportion of the additional pension.
Of course, the disadvantage of taking his state pension now is that he'll be receiving income which is not required, which will be subject to income tax.
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In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.