2 February 2005 - Flexible retirement - state pension deferral
People who choose to take their state pension late could, after five years, get a one-off payment of over £30,000 revealed Secretary of State for Work and Pensions, Alan Johnson, at the publication of the department’s Five Year Strategy.
Mr Johnson said the government was keen to ensure older workers could make the choice about how and when they retire. The ability to defer would be central to this aim and would help encourage people who wanted to work past the state pension age. The option becomes available from April and further information on the subject for people approaching state pension age was published for the first time today. This new choice is just one of the ways in which the Government plans to ensure that at least 1 million more older people are in work. Other steps include legislating to tackle age discrimination and tax reforms so people can keep working after drawing their occupational pensions.
Mr Johnson said:
“All the research shows that people want the choice about how and when they retire. Already over 1 million people have chosen to carry on working in some form past pension age and I want to encourage people who still have something to offer in the workplace to keep on working.
“The chance to defer offers our older workers a real choice about what they want to do when they get to State Pension Age. A typical person who defers for five years could be looking at getting a taxable lump sum of anything between £20,000 and £30,000.”
The Five Year Strategy set out details of what a person could expect to receive if they deferred a state pension of £105 for anytime over one year:
- £5,646 for one year
- £11,673 for two years
- £32,306 for five years
- £77,090 for ten years
Those who choose to defer can instead receive it as an increased weekly amount added to their pension when they finally claim. Someone with a full basic state pension at this April’s rate of £82.05 will be able to get a weekly pension of:
- £90.58 if they defer for one year
- £99.12 if they defer for two years
- £107.65 if they defer for three years
- £116.18 if they defer for four years
- £124.72 if they defer for five years
Minister of State for Pensions, Malcolm Wicks, said:
“We are working towards ending the shame of perfectly capable workers being in work one day and then effectively out the next just because of their age. It is not about forcing people to work longer, far from it. Instead we want the workplace and the state to be flexible enough that where someone wants to work and can do so we can accommodate this.
“We will face a number of challenges as our society changes and enabling people to extend their working lives is an important way of meeting this head on.”
Notes for editors
- The Department for Work and Pensions Five Year Strategy is available at: http://www.dwp.gov.uk
- The introduction to State Pension Deferral “Your State Pension Choice – Pension now or extra pension later: An introduction to State Pension Deferral” is available at http://www.dwp.gov.uk/lifeevent/penret/penreform/6_sp.asp. A copy of the leaflet can be ordered by phoning 0845 7 31 32 33.
- A person is not required to be in work while deferring his State Pension in order to qualify for a lump sum or increased weekly pension.
- The rate of return on the lump sum will be set at an interest rate of 2% above the base rate. The example cited above assumed a base rate of 4.75 per cent, which means an interest rate of 6.75 per cent for the lump sum.
- The rate at which State Pension increments accrue is also changing. From 6 April 2005 it increases from the equivalent of 7.5% of the weekly pension for each year of deferral to 10.4%.
- From 6 April 2020 State Pension age for both men and women will be 65. The government will introduce the change gradually from age 60 to 65 for women over a 10-year period from 2010 to 2020.
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