Why it could pay to delay retirement: Putting off your pension for one year could boost your annual income by £1,000
Putting off your pension for a year could add thousands to your retirement pay if rates soon pick up.
Money Mail figures show that you could boost your annual retirement income by about £1,000 if you are able to keep working for one more year.
The Bank of England is expected to raise the base rate soon after it has sat at 0.1 per cent since March last year. Experts would then expect annuity rates to rise, too.
Pension boost: You could boost your annual retirement income by about £1,000 if you are able to keep working for one more year to take advantage of a base rate rise
An annuity pays out a guaranteed income until death, but recent low rates mean pensioners have long not been able to get much for their money.
A healthy 66-year-old with a £100,000 pension pot can now buy an annuity that pays just £4,037 a year and increases 2 per cent annually.
Before rates started to fall in 2008, an annuity from the same pot could have paid nearly £8,000 a year.
If rates on offer were to rise by 10 per cent, a £100,000 pot could expect to attract an annuity paying close to £4,500 a year, according to investment service AJ Bell.
Over a 20 year retirement, the increase would be worth more than £9,000.
Tom Selby, head of retirement policy at AJ Bell, warns many insurers may already by pricing in a rise in interest rates.
He adds: ‘If you decide an annuity is the right option, the decision on when to buy should be based on your income needs rather than a gamble on what rates might do.’
Anyone able to put off retirement can also boost their final pension income by deferring their state pension.
Yet experts say anyone thinking about deferring their pension needs to consider their life expectancy.
For anyone who reached state pension age after April 2016, the deferral rate is 1 per cent extra for every nine weeks they defer, around 5.8 per cent a year.
So waiting a year would increase it by more than £10 – from £179.60 to more than £190 a week.