Question
I have Deferred my State Pension for 4 years. On the 11th April 2011 inflationary increases will apply to State Pensions.
Would I lose out on these increases if I delayed activating my pension options till later in the year?
Answer
No you won't. When you defer your state pension you receive an extra 0.2% of your weekly state pension for every week deferred, equal to 10.4% a year. When you eventually take your pension this extra entitlement is applied to the prevailing state pension at that time and thereafter.
For example, the basic state pension is currently £97.65. From 11 April 2011 it will rise to £102.15 (by September 2010 RPI: 4.6%), so if you take your pension after that you'll receive £102.15 plus whatever extra percentage entitlement you're owed from, deferring, e.g. if 10.4% you'll receive £102.15 + 10.4% = £112.77. And let's suppose the basic state pension rises to £105 per week the following year then in our example you'd receive £105 + 10.4% = £115.92.
Likewise, if you instead opt to receive a lump sum you won't lose out as you'll receive the unclaimed pension (which will include the higher payments from 11 April) plus interest of 2% above the Bank of England Base Rate.
As an aside, this is the first year that the Government's new state pension 'triple guarantee' will apply. That is, the state pension will rise by the greater of the increase in average earnings, inflation or 2.5%. This year inflation is measured by the Retail Price Index (RPI), but from April 2012 it will be the Consumer Price Index (CPI).
I have Deferred my State Pension for 4 years. On the 11th April 2011 inflationary increases will apply to State Pensions.
Would I lose out on these increases if I delayed activating my pension options till later in the year?
Answer
No you won't. When you defer your state pension you receive an extra 0.2% of your weekly state pension for every week deferred, equal to 10.4% a year. When you eventually take your pension this extra entitlement is applied to the prevailing state pension at that time and thereafter.
For example, the basic state pension is currently £97.65. From 11 April 2011 it will rise to £102.15 (by September 2010 RPI: 4.6%), so if you take your pension after that you'll receive £102.15 plus whatever extra percentage entitlement you're owed from, deferring, e.g. if 10.4% you'll receive £102.15 + 10.4% = £112.77. And let's suppose the basic state pension rises to £105 per week the following year then in our example you'd receive £105 + 10.4% = £115.92.
Likewise, if you instead opt to receive a lump sum you won't lose out as you'll receive the unclaimed pension (which will include the higher payments from 11 April) plus interest of 2% above the Bank of England Base Rate.
As an aside, this is the first year that the Government's new state pension 'triple guarantee' will apply. That is, the state pension will rise by the greater of the increase in average earnings, inflation or 2.5%. This year inflation is measured by the Retail Price Index (RPI), but from April 2012 it will be the Consumer Price Index (CPI).
Read this Q and A at http://www.candidmoney.com/questions/question436.aspx
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