Is it worth deferring my state pension?

I turn 65 next year. There is then an option to draw the state pension or to defer it for up to five years, when I can take additional pension or a lump sum to compensate for the delay. To what age would I need to live to make it worthwhile to defer? Do these watershed ages vary between men and women?

The answer varies depending on whether you defer for a lump sum or for the extra income. But with both, the terms on offer from the Department for Work and Pensions are uncharacteristically generous.

The lump sum option is the more straightforward: the deferred income is rolled up at a rate of bank base plus 2 per cent, and paid to you in one go on your 70th birthday. If you compare that with drawing your state pension and paying it into a risk-free savings account for five years, then you would almost certainly not achieve a comparable rate of return. But you would need to live to 70 to enjoy this uplift.

If you opt for a higher income after the five years’ deferral, then the question is whether you will live long enough for the higher state pension – which has been increased at a rate of 10.4 per cent for every year that you defer – to catch up with the income payments you have missed out on. The good news is you probably will. At age 70, the deferred basic state pension will be nearly 50 per cent higher than the non-deferred pension. You would then need to live for another nine or 10 years to pass the break-even point, which brings you within standard life expectancy projections.

Women have a slightly higher probability of hitting the breakeven point because of their higher life expectancy.

This is a crude calculation, but for most people in reasonable health, the chances are that if you defer your state pension, then you will benefit – at least under current rules.

How to be
unlawfully wed

Wealth Questions (December 8/9) mentioned the possibility of “non-legal” wedding ceremonies as a way of sidestepping the financial risks of divorce. How do these (not) work?

Michael Rowlands, partner at solicitors Cripps Harries Hall, says a marriage celebrated in England and Wales will be lawful if it takes place according to English law. The marriage must be evidenced by a certificate/licence from a recognised registrar and celebrants must be: of different sexes (there is a difference between a marriage and a civil partnership ceremony); not be married already (bigamy is a criminal offence and the second marriage void, so confounding the late Les Dawson’s joke that the punishment for bigamy in England is two mothers-in-law); be above the age of consent; and be outside prohibited categories traced through half-blood/whole-blood and marriage.

But even where such categories fail, the courts have frequently found that if a ceremony of marriage has taken place which itself would be enough to constitute a valid marriage, it will be upheld. Both civil and religious marriages are recognised.

If there is a valid marriage, then there can be a divorce and with it a financial settlement.

The situation with marriages conducted abroad is governed by the law of the place in which the marriage was celebrated.

An English court will recognise an overseas marriage if it is valid under relevant foreign law unless it would “be offensive to the conscience of the English court”. In deciding whether to grant recognition to an overseas marriage, the English court will exercise “common sense, good manners and reasonable tolerance”.

Jerry Hall and Mick Jagger asked the High Court in London to consider their marriage ceremony. The evidence showed that the couple had gone through an “elaborate ceremony” in Bali in November 1990. The ceremony was witnessed and photographed by many and there was a cake and an exchange of rings.

The ceremony was conducted by a Hindu priest and the High Court found that a ceremony had taken place which Jerry Hall at least believed to be a valid ceremony of marriage. The test for the English court was whether the ceremony complied with local laws of Indonesia. Indonesian law confirmed that the marriage required to be registered, but this one had not. It would still have been possible to overcome this irregularity but to do so the participants would have to have been of Balinese-Hindu origin, and the marriage was therefore declared null and void. Inevitably, the failure of the ceremony and the High Court’s refusal to recognise it affected Jerry Hall’s financial settlement.

If there is no marriage then there can be no financial claims. Entitlement, maintenance and need disappear, replaced with common law and trust principles surrounding property. If there are children, there may be additional claims related to their needs.

A married woman might pursue a claim for 50 per cent of the matrimonial assets and maintenance to meet her needs. An unmarried woman will have no maintenance and will struggle to make a claim against any asset that does not have her name on it.

The advice in this column is specific to the facts surrounding the questions posed. Neither the FT nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.

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