The value of incentives to defer the UK state pension

The UK state pension system is confronted by the pressures of adverse demographics and the possibility of growing retirement income security. This article evaluates one public policy response to these pressures: measures to incentivise deferral of statutory retirement. It appraises the financial benefits of deferral options under assumptions concerning life expectancy, tax rates, real terms pension growth and length of deferral period. The results show an incentive to defer, particularly where the pension enhancement option is selected over the lump sum payment. Overall, the analysis suggests that the measures to encourage the take-up of existing first pillar deferral options would be beneficial.