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Deferring Your Pension: The Pros and Cons

Posted on | January 30, 2013 | Comments Off

Retirement is the dream that we’re all reaching for - everyone anticipates the day they don’t have to get up early to go to work anymore. However, it might actually work out better for you to defer your pension and continue working, whether it be for just a few more months or even years. There are many benefits to deferring your pension but, as always, you can still expect there to be a few cons as well. If you’re considering deferring your pension, make sure you know all the facts first.

The Pros

-          Increased pension

Deferring your pension can allow you to increase the value of your pension by a significant amount. This could be ideal if you haven’t managed to save as much as you’d like. If working for a little bit longer isn’t that big a deal for you, it might be something to consider. When you defer your pension you are automatically given a 1% increase on your pension amount for every five weeks you choose not to draw it. If you were to defer your pension for a full year, this could give you a 10.4% increase on your pension pot.

-          Lump sum withdrawals

You can also be given the choice to take a lump sum amount from your pension when deferring, which can give you access to an amount of money without spending everything. If you chose to defer your pension for a year, you would be given a year’s worth of your pension plus interest, which is 2% above the Bank of England’s base rate.

-          Chance to continue saving

By deferring your pension you could give yourself a bit more time to focus on your personal savings plans for your retirement. For instance, you could ramp up your dividend investments, put more money away in your ISA or savings account, and up the savings in your personal pension plan.

The Cons

-          Continued working

Of course, the immediate upshot of deferring your pension is that you have to work for longer. This could only be a viable option if you’re in good health, as continuing to work with on-going issues could only worsen the matter. However, some employers set compulsory retirement ages, which could stop you from working for longer. If you were to fall ill and had to be hospitalised or moved into a care home for 24/7 assistance, you would not have access to funds in order to cover the cost of this.

-          Unforeseen circumstances

If the worst should happen and you die before you are able to take your pension, your relatives may not be able to recoup the funds you’ve saved. This would only happen if you were not married or in a civil partnership, in which case your relatives would only get three months’ worth of your pension. So, all of your hard work would be lost. As you can see, there are definitely more pros than cons when it comes to deferring your pension, but it is really up to you when it comes to deciding which would be the best route.

This article was written by Aurora Johnson on behalf of Cheselden, an NHS continuing care specialist. You can find out more about Cheselden by visiting www.cheselden.co.uk now.