I’m only months away from my 65th birthday, and the kindly souls at the Department of Work and Pensions have sent me a non-glossy brochure about the state pension. The key decision is whether to take it asap or whether to defer the start to get a higher income later.

The rule is simple, even if the calculation isn’t. The entitlement rises by 1% every five weeks you defer, or about 10.4% for every full year. At first sight, this seems rather attractive for a reasonably fit 64-year-old with no immediate need for the money (and who will shortly have the added bonus of paying no more National Insurance contributions). It may not be all it seems, however.

If I defer for a year, it will take me almost to my 75th birthday before the value of the pension income finally overtakes the income I had given up. Curiously, the sums for deferring for two or three years are not that much different: the break-even ages there are 76 and 77 respectively. If I then survive into my 80s, I’ll be quids in. Unfortunately, that’s not the end of it.

The coalition has pledged to link the state pension to changes in earnings, rather than prices. The squeeze on incomes has meant a useful (to the exchequer) saving at a time when prices are going up faster, but history shows that this is unusual, and the last time pensions were linked to earnings, the cost was too great to bear and the link broke.

Then there is the little matter of income tax. I expect to keep earning for some years yet, which means that 40% of the pension would be recycled to the Treasury while I do. That makes deferral much more attractive, since I may be struggling to earn anything at age 75.

The biggest unknown is future changes to the rules, like means-testing for the state pension, or a punitive tax on the deferred part. Various governments have form here, as they have progressively devalued Serps. Even so, I’m quite tempted not to start taking my reward for 40 years of National Insurance contributions just yet.

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