Continuing your career into your 70s may put retirement off, but it can have benefits for your wellbeing, both mentally and physically. Maintaining your employment status can also give you more financial security and ensure you have a good income during retirement.
Retirement ages are on the rise, with the state pension age expected to increase to 67 by 2028. This could mean you only retire in your late 60s. You will have access to your private and workplace pensions earlier, but this is also likely to increase to 57 in 2028.
Consider these 6 reasons for deferring state pension before you decide your retirement age.
Life Expectancy is on The Up
The average 65-year-old could expect to live for over 22 years, according to data from ONS1, so your retirement fund will need to stretch for more than two decades from the date you can access your state pension, and even longer for your private pension. This is a long time to rely on your retirement income, especially if you’ve only managed to save a small fund.
What this means for you
The longer you wait to take your pension, the longer it will last.
There are online tools to help in your planning – use a pension calculator to estimate how much you’ll need and the ONS’ life expectancy calculator to see how many years you may have in retirement.
Your Fund Will Keep Growing
If you choose to stay employed and keep contributing to your pension fund or leave your fund intact, you can look forward to some benefits in the long run.
You could benefit from compound interest, which adds up over time and can turn a small fund into significant amount if you’re not withdrawing. Leaving your funds untouched could also benefit you if your pension balance has fallen due to the economic downturn – you can rather wait until the markets recover and your fund grows again.
But there’s more
When you chose to access your pension later, you’ll be able to live off a higher income because you won’t have to make the amount last as long. To give your fund even more time to grow, you could consider a flexi-access drawdown option, which will allow you to withdraw lump sums as you need them while keeping the balance invested.
Your Investment Potential Can Be Maximised
As the date of your retirement looms, many pension plans will automatically reduce the risk to your funds by changing the assets you invest in. Commodities and shares are linked to the market’s performance and can become riskier as you approach retirement.
This is risky towards the time of retirement because if the market takes a tumble, your pension balance could decrease, and you may not have enough time for it to recover before retirement.
However, if you delay your retirement, you may be able to benefit from these types of investments for several more years.
Did You Know?
The change in investment usually takes place 5 to 10 years before your retirement, so let your pension provider know well in advance if you plan to delay your retirement.
More Employer Contributions
Your employer is required by law to contribute towards your workplace pension, so the longer you keep working, the more contributions your employer will make. Auto Enrolment into your workplace pension requires your employer to contribute a percentage towards your retirement fund, but many will match your contribution. This means the more you pay in, the more your employer will contribute.
You Are Eligible For Pension Tax Relief Until Age 75
If you’re contributing to your pension, you’ll be eligible for government tax relief programmes1 as well as contributions from your employer. Your tax relief will be based on the income tax you pay, and this can start from around 25%. You can claim tax relief on pensions up to £40,000 or 100% of your annual earnings.
Your Payments Can Increase If You Delay Your State Pension
The state pension is usually only available until around a decade after your private or workplace pension. If you have other income sources or are still working, you could also defer your state pension. This could result in you getting a high weekly amount our, or even a lump sum payment.
The amount you could qualify for will depend on when you reached state pension age2:
- If it was before 6 April 2016, your state pension would grow by 1% for every 5 weeks you delay it. This adds up to over 10% for every year. You could also be entitled to a lump sum payment if you defer your pension for at least a year before taking it.
- If you turned the state pension age after 6 April 2016, you’d see a smaller increase because the state pension amount is more. It will increase by 1% for every 9 weeks you delay, or 5.8% annually. You won’t be eligible for a lump-sum payment.
A Few Common Questions
A retirement shortfall is when you do not have enough pension saving to provide the necessary income during your retirement years. A retirement shortfall could mean you need to return to work or sell some of your assets.
There is no cut off period for deferment, and you can start deferring your pension even if you have already begun withdrawing from it.
The state pension is provided by the government, and your eligibility for it is based on your National Insurance contribution record. Your private pension is a fund you save towards in your own capacity and is dependent on the contributions you make while you are employed.
You can withdraw from your pension fund after you’ve turned 55. You can remove up to 25% of your fund tax-free. While there are some scenarios in which you can get your pension early, you will need to meet specific criteria such as a medical condition that stops you from working, or if a doctor has said you have less than a year to live.
If you’re close to retirement age but are planning to defer your pension, contact your pension provider. Some schemes have restrictions on the date of retirement, and you may find you have to pay a fee to change your retirement.