Company pensions explained Deferring your company pension
You can take your pension early or late. The main reason for delaying taking your company pension (known as ‘deferring’), is to boost your retirement income. This applies to defined contribution (DC) pensions, rather than defined benefit (DB) schemes.
With a defined contribution (DC) scheme, the longer you leave your pension invested, the more pension you’ll build up.
This guide explains what happens if you do decide to delay receiving your company pension.
Do you need to defer your company pension?
Before you decide to defer your company pension, work out how much money you’ll have in retirement, which will tell you whether or not you’ll need to take the risk of deferral. You can do this by getting an idea of your current spending.
Take three months’ worth of bank and credit card statements, payslips going back three months and three months of shopping receipts. Also remember to factor in one-off spends like birthdays, Christmas, holidays and car repairs.
Now work out where you think you’ll spend more once you’ve retired – because your situation is changing, so will your spending habits. You’ll need to compare this with how much income you’ll be getting in retirement (from pensions, benefits or savings), to find out if there are any shortfalls.
Go further: How to plan an effective budget - get prepared for your retirement with our helpful guide.
Deferring your final salary pension
Your final salary (defined benefit) scheme may not allow you to defer claiming your pension, so check with your employer or scheme administrator first.
Some defined benefit schemes may allow you to build up extra entitlement if you work beyond state pension age, but this depends on scheme rules and is not always the case. Final salary pensions aren't investment-linked, so how the stock market performs won't affect your pension's value.
Go further: Final salary pensions - all you need to know about these types of pension schemes
Deferring your defined contribution pension
If you've saved into a defined contribution, or money purchase, pension scheme, there are a number of things to consider.
- Your pension will have more time to grow, meaning that you should end up with a higher retirement income
- If you carry on working, you’ll also continue to pay into the scheme, which means your fund will be bigger when you come to retire
- Annuity rates improve with age, so you’re likely to secure a bigger retirement income if you purchase your annuity later (although investment conditions also play a role, so rates could drop if conditions are poor). You're no longer obliged to buy an annuity with your defined contribution pension
- Leaving your pension invested could mean it grows, but if the stock markets fall, so could your pension’s value
- Annuity rates may fall, meaning your larger pension pot could end up securing a lower income than it would have done
- You’ll miss out on retirement income during the time that you defer, and it could take many years to make that back
Go further: Defined contribution pensions - read more about these types of pensions in our handy guide.
Should I defer my company pension?
Whether or not you should defer your company pension depends on your situation. If you have a good state pension or income from other sources and continue to pay into your workplace scheme, it could be worth deferring for the extra retirement income you’ll get.
Go further: State pension explained - read our guidance on the state pension in one place.
However, poor investment conditions could mean that deferral isn’t worth it. Claiming your company pension at retirement age and then investing part of it in a savings account could mean you achieve more growth than if you deferred, without missing years of retirement income that you have to make back. Seek financial advice if you're unsure.
Go further: Financial advice explained - read our guide to picking a good financial adviser.
- Deferring your state pension - Find out whether delaying your state pension is worth it
- Retiring abroad - How it will affect your pension entitlement
- The Which? Money Helpline - Get expert advice on your workplace pension
Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.