How do I calculate my deferred pension?

A deferred pension is simply a pension you delay taking and accessing the funds later than you could have. The longer you wait before accessing your retirement funds, the higher your potential retirement income could be.

This article explains how to use a deferred pension calculator for all the main pension schemes, such as the state pension, personal, workplace, and defined benefit schemes.

You can defer your state pension, private/personal pensions, and most types of workplace pension—the choice is yours. Delaying taking a pension is a great way to increase your retirement savings, which helps ensure a more comfortable retirement.

Nonetheless, a deferred defined benefits scheme is a type of pension arrangement in which a pension has built up benefits but has not started receiving them.

When you leave employment with a company or organisation offering a defined benefits pension scheme before retirement age, your pension benefits become deferred.

This means that although you have accrued pension rights, you have not yet started receiving pension payments.

Deferred pension calculator - state pension

You can start receiving your state pension after your official state pension age. By claiming it later, you will receive a higher income when you make a claim and start receiving it. Calculating your state pension is dependent on when you reach state retirement age.

It is straightforward to defer your state pension. You don’t claim it. A few months after you reach your state pension age, you will receive a letter with instructions on how to start receiving your state pension payments.

Please do not respond to this letter to defer your state pension, but you must keep it safe for later reference when needed.

If you reach state pension age on or after 6th April 2016, provided you defer for at least 2 months and a week, your state pension will increase weekly.

While deferred, your state pension increases by 1% every 9 weeks, which equates to just below 5.8% every 52 weeks. When you start taking it, the extra money will be given to you with your regular state pension payment.

If you reached state pension age before 6th April 2016, your state pension will increase every week you defer, provided you defer for at least five weeks.

Whilst deferred, your state pension increases around 1% for every 5 weeks you defer. This equates to 10.4% for every 52 weeks. When you start taking it, the extra money will be given to you with your regular state pension payment.

You can also take your additional state pension as a one-off lump sum.

Deferred pension calculator - personal or workplace pensions

Most modern personal and workplace pensions are defined contribution schemes whose fund value depends on the amount of money you contribute and how your investment funds perform over time.

If you defer a defined contribution pension, your funds remain invested for longer and usually continue to grow, increasing your eventual retirement income.

If you defer a pension and don’t start taking your benefits at normal retirement age, you can either stop paying into your pension or continue making contributions.

If you continue paying into your pension, you will also continue receiving tax relief on contributions until the age of 75; for 2024/25, this is up to £60,000 a year. If you keep paying into a workplace pension, you should also continue receiving contributions from your employer.

Calculating deferred personal, defined contribution, and workplace pensions depends on many factors, i.e., whether you continue to contribute, the amount you contribute, how long your funds remain invested, and the performance of your funds.

Seeking professional advice from an FCA-regulated advisor may assist you with a calculation and provide an estimated, projected valuation based on your circumstances.

Deferred pension calculator - defined benefits / final salary or career average pension

Suppose you have a defined benefit or final salary pension. In that case, you will have to check whether, by deferring your retirement, you stand to forfeit any income guarantees and benefits you are entitled to, such as a lump sum payment on retirement or a guaranteed annuity rate.

This type of pension is not linked to investment performance; therefore, in most cases, deferring a defined benefit pension is unlikely to significantly increase your retirement income.

Different pension providers and schemes will have other restrictions and deadlines on deferring a pension, and you may have to pay some charges.

You should contact your pension scheme administrator to learn more about the rules and restrictions that apply to your particular policy, well before your retirement age, to allow yourself enough time to follow the correct procedures, as well as to make sure you don’t break the rules.

Defined benefit or final salary pension values are calculated by how long you have been a member of the scheme, by multiplying your final salary, then dividing it by the accrual rate that applies to your scheme.

The accrual rate is a fraction of 1/60th or 1/80th of your pensionable pay. You may also have the option of taking a pension lump sum and your pension income; if you take a lump sum, your pension income will be reduced accordingly – the lump sum is usually tax-free to you.

A career average pension scheme (CARE) is like a defined benefits scheme, and the pension is based on the average of your pensionable earnings throughout your membership in the scheme, which is revalued in line with inflation.

Your career average pension benefits are based on 1/57th of your annual pensionable earnings plus index linking. Each year, your contributions are accumulated, and your eventual pension at retirement consists of all the amounts accrued for each year.

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