A deferred pension is a pension that you delay accessing until later in your retirement. It is a way to accumulate retirement savings during your employment phase and choose when to start receiving the pension payments. The longer you wait before accessing your savings, the higher your pension payments will be. Deferring a pension can be a smart strategy if you do not need your retirement income immediately. There are different types of deferred pension plans, including defined contribution pensions and defined benefit pensions.

If you have a defined contribution pension, you can withdraw the money in your personal or workplace pensions from the age of 55 (57 from 2028). If you’d like to wait until your early-60s, or begin drawing it at the same time as your State Pension, you’ll need to defer it. When you defer a defined contribution pension, there’s potential for your savings to continue growing as your money will be invested for longer. If you have a defined benefit or ‘final salary’ pension, you’ll need to check whether deferring your pension forfeits any income guarantees and benefits you stand to gain.

If you leave your job before your normal retirement age, you can keep your pension benefit on deposit in the plan. This is called a deferred pension. Even if you don’t plan to return to work for an employer that participates in the plan, leaving your pension benefit on deposit with the plan can be a good choice. A pension is a significant financial asset that will provide you with a lifetime monthly income.

When you defer a pension, you can either continue making contributions or stop paying into your pension. If you choose to keep paying into your pension, you can continue receiving tax relief on contributions until the age of 75, up to £60,000 a year (2023/24) in contributions. If you keep paying into a workplace pension, and meet the criteria for Auto-Enrolment, you should continue receiving contributions from your employer.

Potential disadvantages of deferring a pension include...