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 DC scheme, the longer you leave your pension invested, the more 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 workplace 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' shopping receipts. Also remember to factor in one-off spending such as 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 much will I need to retire? – 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: Defined benefit and 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. You can actually access your pensions at age 55.
- Your pension will have more time to grow (if left untouched or placed into drawdown), 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 otherwise.
- 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 and money purchase schemes – read more about these types of pensions in our handy guide.
Should I defer my workplace 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: Your state pension and benefits – 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.