February 18th, 2009
Anyone hitting retirement with a substantial pension pot can often feel like the job is done and their comfortable retirement secured. But low interest rates mean low annuity rates and retirees may therefore wish to consider other options to maximise their income. One solution is to defer your pension payments, which, as your age increases (and assuming interest rates do not fall further), could result in higher payments. There are three main reasons why retirees might defer payments from their pension: One, because interest rates are low and waiting a few years may help them secure a more favourable annuity rate, particularly if interest rates rise in the meantime; Two, retirees may chose to continue some form of paid employment, which can support them in the short-term without the need for their pension; Three, a pensioner may want to buy a joint life annuity, but have a younger partner. Waiting until that partner is older will secure a better rate on the annuity. On retirement, you can take a tax free lump sum of up to 25% of the value of your pension pot. The rest is used to buy an annuity, but taking any or all of these benefits can be deferred until as late as age 75 (when your situation must be reviewed). There is also a deferment option for the state pension scheme. For every year you defer taking that income, you get 10.4% extra income which could be worth over £470 per year on a full state pension (based on 2008/09). Sometimes it pays to wait.