Should I Defer My Pension?

Posted on: 27 October 2008 by Gareth Hargreaves

50connect reader David asks expert Peter McGahan about the options available when deferring a pension past retirement age.

Company and Government pension schemes have advantages and disadvantages but paying your pension into an ISA is not the right way forward.

I am working on past 65 with my company's agreement. I am fit and well and have been with the company for 36 years.

I don’t know whether to take my old age pension and put it into an ISA or let it get extra from the Government after a year?

I also have a final salary pension which will be frozen until I retire. My company’s pension rules are that once you retire you cannot work for them again, even on a part time basis.

There are two pensions referred to: your company and your government scheme. Let's look at them.

The state pension can be deferred for pretty much as long as you want. You will find good information on this at the Pensions Advisory Service.

The advantage is that your pension will increase and also you are not adding to your taxable income. The disadvantage is the increases in the pension are not very special at all.

Your company should also allow you to defer the pension with them and depending on what type of scheme you have, you will be offered different flexibilities. The two types of scheme you are likely to have are a final salary scheme or a personal pension.

With a personal pension you can simply carry on contributing and you also have the choice of asking your employer to pay your wages in total into your pension to keep your taxable income low.

Taking your pension now and paying into an ISA will serve no benefit as you can do that at any time. All you are doing is taking from one pot and putting into another and probably going through product charges in the meantime.

A pension grows just as tax efficiently as an ISA so there are no tax breaks to move it.

If you were in need of the cash you could consider drawing the capital out and leaving the fund to grow. This is called drawdown.

One of the advantages of deferring your personal pension is the ability to buy your annuity at a later stage. This has two benefits:

  • Your pension fund has longer to grow before you eventually take it
  • The older you are the better annuity rate you receive

Pension and annuity planning can be pretty technical so ensure you receive pension advice from a good fee based Independent Financial Adviser.

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