Timing can play a big part in the income you will receive when you retire and you can choose to defer your state pension as well as your personal pension.
Deferring your state pension The government is now offering a choice of extra state pension or a taxable lump sum (payable when you make your deferred claim) if you decide to defer claiming your state pension. When the Pension Service writes inviting you to draw your pension, you simply inform them in writing that you wish to start receiving your pension later, if you are receiving other social security benefits. If you are not receiving other benefits, you don't have to do anything until you decide to claim your state pension.
Deferring your personal pensionLeaving your pension pot invested means it has more time to, hopefully, grow in value before you use it to secure your retirement income. A higher pension fund value is naturally expected to secure higher income. Additionally, as you age the level of annuity income you can secure for a given size of pension fund also increases. So combined, deferring the use of your pension fund can considerably increase the level of your retirement income.
However, there are potential drawbacks to deferral It’s likely you will need to make alternative provisions for your income, and depending on how long you live for, you may not get back the amount of missed income payments that you have chosen to defer. In effect it could take a number of years to ‘profit’ from your decision. There are also other risks, such as your assets falling in value or annuity rates reducing as a result of factors outside of your control (e.g. interest rates or stock market volatility).
There is also the risk that by deferring your retirement, you miss out on a Guaranteed Annuity Rate (GAR). Some pensions offer a GAR, which may be connected to a specific retirement age. You or your financial adviser can find out if this is the kind of pension you have from your pension provider.
Importance of advice We recommend you contact your financial adviser to discuss your situation in more detail. If you don't have one, the website Unbiased.co.uk can help you find a professional local to you.
Useful links Pensionsadvisoryservice.org.uk - deferring state pensions
Hmrc.gov.uk - pensions