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Inflation in the UK has increased to a 30-year high of 5.4 percent, prompting one expert to suggest deferring your pension.
A British chartered financial expert Makala Green discussed the inflation rate and its potential effect on pensions with Express.co.uk.
For those about to retire, Makala said: “If you have not already retired, you have the option to defer your pension for a while until inflation calms down and prices are more controlled (although the timing is not guaranteed).
“This way, you keep your money invested, and it will continue to grow, meaning you have the opportunity of getting more when you retire.”
What does it mean to defer your pension?
Deferring your pension means not to claim it as soon as you are eligible.
It is possible to defer both the state pension and your private pension.
Many defer taking their pension to increase payments. Deferring a state pension will boost the payments when you do claim.
With a company pension, the longer your wait to claim it, the more your invested savings could be boosted.
Pros of deferring a company pension include the pension having more time to grow.
If someone is still working they can carry on contributing to the scheme, further building it and if you choose to swap your pension for an annuity, doing so at an older age will likely mean you are eligible for a better rate.
However, there are some risks. If the stock markets fall a pension may be worth less than it would have been if it had not been deferred.
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How do you defer your pension?
To defer your state pension all you need to do is not claim it from the Government.
You won’t get your state pension until you have claimed it, and you have to have reached state pension age to do this.
It is wise to check with your private pension provider their rules when it comes to deferring your pension.
It is important to check if you will lose income or benefits included in the scheme, or incur charges if you delay taking your pension before making any financial decisions.
Makala explained exactly how rising inflation could affection pension.
She said: “Pensions are a great way of saving for the future and retirement.
“Historically, pensions usually grow faster than inflation, but pensions aren’t immune from the effects of inflation, both when saving and while taking an income in retirement.
“Most pensions are inflation-linked, meaning they aim to rise in line with inflation.
“However, with inflation at record levels currently 5.4 percent (CPI), many pensions will have difficulty keeping pace.
“How inflation impacts pensions and pensioners will depend on the type of pension they hold.”
A state pension trick could see Britons claiming an extra £222 a month.
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “The amount of State Pension that you could miss out on through not having quite enough qualifying years is eye-popping.”
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