Pension planning must be a flexible process – changes in legislation and retirement ages means it is important to constantly review and reassess the best course of action. Tricks of the trade can help too, and a little known method in which to boost retirement income is through the concept of ‘unretiring’. This tactic enables state pensioners to take advantage of a loophole in the system that can be very lucrative. It is a method particularly useful to those that have additional sources of revenue, alongside their state pension.
The practice works by allowing those who draw a state pension to ‘pause’ it. This results in an additional 1 percent increase on state pension payments for every five weeks deferred. What is even more useful is that is it possible to defer even if you have already begun to receive your pension.
If you reached the state pension age before April 2016, every year you defer adds an additional 10.4 percent to your payments. You do not need to defer for a whole year, as it is entirely up to you how long you choose to pause your state pension for.
Initially deferring will result in a drop of income, but when you decide to re-draw your state pension again the payments will include the additional percentage increase and will produce far greater returns over the mid-to-long term.
As ever there are some catches. The loophole is far more generous for those who fall into the old state pension system – in place before April 2016. Retiring after this date results in a drop in the yearly increase from 10.4 percent to 5.8 percent. There is also a cap on deferring more than once, so the ability to start and stop payments is not available.
This pension loophole is starting to draw widespread attention in the media, but many critics argue the Government is not publicising the loophole to those who could benefit. We advise that if you are thinking of deferring your state pension for a year it is worth considering that you will need to live for at least 10 years to make up for the deferral.
For more information on deferring from your state pension and retirement planning, please get in touch with one of our advisers.