PensionsDec 19 2014

How to double guaranteed retirement income

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

In the latest FTAdviser video interview, Alan Higham, retirement director at Fidelity, explains the benefits of deferring taking your state pension.

Mr Higham argues some clients could “double the guaranteed income” they can get from an annuity by deferring the state pension.

Speaking to FTAdviser’s Emma Ann Hughes, he says: “State pension deferral increases the state pension by 10.4 per cent for every year that it is deferred. The state pension behind the scenes is going up with inflation so that is 10.4 per cent on top of inflation.

“Roughly speaking, if your client is say 65 to 70... instead of investing £50,000 in an annuity that will pay 6 to 7 per cent income, they could effectively double the guaranteed income that they can get... by deferring the state pension and using that fund over three or five years.

Mr Higham says his own calculations for a 65-year-old deferring state pension for three years would involve them using about £25,000 of their private pension savings to provide an income over the deferment period equivalent to state pension “plus a little top up”.

After this period the state pension should produce a better income than the annuity - and there would still be the residual amount in the fund to provide a lump sum or supplementary income, Mr Higham says.

He adds: “In order to beat that income over the rest of their life the investments would have to produce around 10 per cent a year return for someone who just has reasonable life expectancy.”

emma.hughes@ft.com