Deferred UK State Pension - Think of it as Though You Are Purchasing an Annuity



There is plenty of information around about the pros and cons of deferring your UK State Pension.  A thorough exploration can be found in this FT Article. ¨Should I defer my UK state pension?¨ . The two biggest considerations are whether deferring your pension minimises your tax liability by deferring income to a time when you may be in lower tax bracket and the consideration of your state of health - are you likely to live at least another 17 years?  If tax isn´t a factor then I think it´s useful to consider deferring as equivalent to purchasing a single life c.p.i. linked annuity with pretty much the same issues of value for money, anticipated life span and the inability to pass money onto heirs.

The outstanding positive for deferring is it´s exceptional value for money compared to purchasing an equivalent annuity from a life insurance company.  Deferring your pension means you are effectively purchasing an indexed linked annuity backed by the government giving a yield of 5.8% whilst a similar product from a life company provides around a 3% yield - effectively an 80% higher return through deferment.

So if one of your retirement options was purchasing an annuity the deferring the state pension should also be a consideration and for some retirees more tax efficient.




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