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Women hitting state pension age before April 2016 can boost their pension pot by 20% if they defer

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20/08/2014
By combining Budget reforms with existing rules which reward savers who delay taking their State pension, eligible women can boost their payout by up to tens of thousands of pounds over a lifetime.

The route will benefit most those women with small workplace pension pots due to hit state pension age before April 2016, and allow them to increase their retirement income by 20%, the Daily Mail reports.

The legal loophole is only emerging now as pensions experts work out all the implications of sweeping changes coming in next April.

Men can also take advantage, but the biggest benefits will be for women whose retirement plans have been thrown into chaos due to reforms of the state pension.

A higher retirement age – currently 62 – means women miss out on years of state pension which someone born just a few months earlier would have received.

Many of these women have also narrowly missed out on the new, higher, flat-rate state pension of £155 to be introduced in April 2016.

So women who must retire before this date have had to work longer, and won’t benefit from the larger payout either.

And because women are often paid less than men, their workplace pensions are also usually much smaller.

Previously, they were forced to turn their pension into an often poorly paying annuity which pays an income for life.

But now, by postponing the date when they start claiming the state pension and using new, flexible rules to draw small sums from their work pension free of penalty, these women would be better off.

This is because higher state payments they receive at a later date will give them a much greater income in retirement.

In some cases it will allow them to claw back much more than they would have got from their original state pension and old private pension put together.

Under the loophole, anyone who postpones receiving their state pension receives a generous 10.4 % increase to its value for every year they do.

Until now, many had no option but to miss out on this extra cash simply because they couldn’t afford to not take their state pension straight away.

Only 1.2million people receive a deferred state pension payment from the Government – barely one in ten of all state pensioners.

To defer, they would either have to keep on working – often not an option – or rely on turning their workplace pension into a low-paying annuity.

But from next April, compulsory annuities are being scrapped – freeing workers to cash in their pots and do whatever they want with their savings.

So by gradually running down their private pension savings to live on in the meantime, millions of savers will be able to defer and then claim a much higher state pension.

Over a typical lifetime, they can receive many more years of higher payments, totalling tens of thousands of pounds extra.

In many cases, this will be more than enough to offset the roughly £5,000-a-year state pension they lost out on as a result of the women’s increased state pension age.

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