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Calls for extra state pensions flexibility after the announcement of new single tier payment in 2016

The number of over-65s still in work has reached one million, according to research published this week, and many working retirees defer taking their state pension until they need it.

But more flexibility in when people can take their state pension has been called for following the Government's announcement of the introduction of the new single tier pension from April 2016.

Currently it can be attractive to defer taking your state pension if you are still working beyond retirement age, as you will be financially rewarded by the Government.

However, the state pension age is rising. Women's state pension age has already started to increase and by 2020 the pension age for both men and women will be 66. From 2026 it will be 67 and from 2046 it will be 68. This will be the age at which the basic state pension becomes payable.

With a personal pension, you can decide for yourself once you reach 60 when you want to start taking your benefits.

David Trenner, technical director at Intelligent Pensions in Glasgow, says: "With a personal pension, when you start taking a pension doesn't have to coincide with your actual retirement. I think more flexibility should also be incorporated into the state pension scheme, with a sliding scale of benefits depending on when you start drawing it."

The current basic state pension for a single person is £110.15 per week. You may get an extra earnings related second state pension on top. However, if you don't have other income, the Government will top up your retirement benefit to £145.40, subject to means testing.

You can boost your state pension by not taking it immediately. For every five weeks you defer taking your pension after state pension age it increases by 1%, which works out at an enhancement of 10.4% a year.

So if you are due to receive your pension this year and delayed it for two years, for example, you would eventually get a pension in today's money of £129.11. Any second state pension you are due to receive would also be increased. Like the rest of your basic pension entitlement, the increase would be up-rated annually by the triple lock (i.e. earnings, the consumer price index or 2.5% whichever is greatest) for the rest of your life.

Alternatively, providing you defer your pension for at least 12 months you can choose to take it as a lump sum with interest. The rate of interest on your accumulated pension payments is currently 2% above Bank of England base rate, which is better than you would get from most savings accounts.

Caitlin Loynd, pensions expert at independent financial advisers Save & Invest in Glasgow, says: "We have quite a few clients who decide to defer their pensions. Typically they are working and are either paying higher rate tax already or would be doing so if they received their pension on top of their other income."

Ms Loynd also commented that quite often women opt to continue working and defer taking their pension until their spouse retires.

She says: "How long people defer varies of course but we find that three to four years is the average."

The number of people working beyond their state pension has been increasing in recent years.

Latest figures from the Office for National Statistics show that some 12% of men over 65 were in employment last year and some 11.6% of women were working beyond state pension age.

People who reach the official state pension age before April 2016 won't be able to qualify for the new flat rate basic state pension by deferring their retirement until after that date.

Laith Khalaf at advisers Hargreaves Lansdown explains: "If you reach pension age before April 2016 and decide to defer, your pension will be calculated on the current basis whenever you eventually take it."

"It will still be possible to defer taking the new flat rate pension after 2016 but the enhancement will be less generous.

"Instead of 1% for every five weeks the Government has said that it will be 1% for every 10 weeks deferral (i.e. 5.4% increase per annum). And there will be no lump sum option so you will need to be confident that you will live long enough to recoup the amount you would have received during the deferral period."

If you live to a ripe old age, it could still pay to defer and as Mr Trenner points out: "Most people underestimate their life expectancy."

But he adds: "A simple table showing how much pension you would get if you retire say one or two years earlier or later than the official state retirement age would be fairer, particularly for people with a reduced life expectancy."

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