Is it better to wait before taking a state pension?

4 September 2012

Q

No one has been able to advise me if it is advantageous to defer taking the state pension for as long as possible.
From
IM, Chester-le-Street

A

The reason you are not getting a definitive answer is because there isn't one. The benefits of state pension deferral are most definitely dependent on your own personal circumstances.

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As a basic starting point, if you are going to be 65 before April 2013 and will therefore be entitled to the age-related personal allowance and are likely to have an income above the £25,400 limit in that tax year, it is definitely worth considering deferring your claim until the next tax year, to reduce your tax liability.

But if you don't have it your income will be impacted, so you need to ask whether you can afford to do without the state pension. If you can get by without that extra income, the interest added to the weekly amount is better than what is available from a building society at present.

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For that reason, as long as the numbers work, deferral for 12 months and then taking the amount that would have been paid to you in the previous year as a taxable lump sum makes much more sense.

If your own situation fits, this could then provide a lower tax liability in the tax year that you retire and a lump sum the following year that can be spent on something nice.