Fidelity urges retirees to consider state pension deferral

Retirees struggling to cope with mounting costs should consider deferring their state pension, if they can afford to do so in the short term, to benefit from above-annuity rate increases in annual income, Alan Higham has said.

Fidelity Worldwide Investment’s retirement director made the comments as research commissioned by the firm found more than half of retirees expect their outgoings to rise over the next five years, despite almost 10 per cent currently struggling to break even.

According to the poll, retirees currently estimate they need £11,232 to live on each year, but 56 per cent of 1,010 respondents expect this figure to increase over the next five years. Almost half (49 per cent) of retirees think this will be due to increasing living costs, while almost 7 per cent think they will end up having to spend more on healthcare costs.

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Mr Higham said: “For any retirees who are currently struggling, those with investments should look to see if it would be beneficial to suspend the state pension.

“If, for example, they drew an income from investments and deferred the state pension for four years, this could boost retirement income by 10.4 per cent per annum. Anyone thinking of doing this should first check that this is in their financial interest.”

His comments echo an article written for FTAdviser last month, in which Mr Higham suggested that if savers with modest private pension savings lived off this in the short term they could get far better value longer term by deferring state pension; and could bank larger tax free lump sums.

Women are more conservative when estimating their income needs in retirement, spending an average of £9,708 to cover annual costs, while men estimate they spend £12,420 each year.

Retirees in their 60s are also slightly more conservative when estimating their income needs in retirement, at £11,052, compared to those in their 70s, who estimate their annual expenditure to be nearer £11,508.

Futhermore, 9 per cent of retirees currently struggle to break even each month, equating to just over 1m retirees nationally.

Mr Higham said those approaching retirement should keep an outgoings diary for six months to see what they really spend and to allow you to budget accordingly.

He said: “If you cannot live on £10,000 now then it is unlikely you will suddenly be able to tomorrow on retirement.

“Also people need to allow for ‘one-off’ expenses, they tend to occur more often than most people allow for in their first stab at a budget. Keeping some capital back - using the new freedoms - can help manage lumpy expenses such as fixing the boiler or car which are hard to avoid.”