If rates rise soon, putting off your pension for one year can add thousands to your retirement income.
Money Mail figures show that you could boost your annual retirement income by about £1,000 if you are able to keep working for one more year.
After remaining at 0.1% since March 2013, the Bank of England will likely raise its base rate. Experts predict that the annuity rate will also rise.
Pension boost: You could boost your annual retirement income by about £1,000 if you are able to keep working for one more year to take advantage of a base rate rise
Although an annuity provides a guaranteed income up to death, recent low rates have meant that pensioners are no longer able get much.
A healthy 66-year-old with a £100,000 pension pot can now buy an annuity that pays just £4,037 a year and increases 2 per cent annually.
Before rates started to fall in 2008, an annuity from the same pot could have paid nearly £8,000 a year.
If rates on offer were to rise by 10 per cent, a £100,000 pot could expect to attract an annuity paying close to £4,500 a year, according to investment service AJ Bell.
Over a 20 year retirement, the increase would be worth more than £9,000.
Tom Selby of AJ Bell’s retirement policy warns insurers they may have already priced in an increase in interest rate.
He adds: ‘If you decide an annuity is the right option, the decision on when to buy should be based on your income needs rather than a gamble on what rates might do.’
Anyone who can delay their retirement may be able increase their final pension income through deferring the state pension.
However, experts advise anyone who is considering deferring their pension to think about their life expectancy.
Anyone who reaches state pension age in April 2016 or later, the deferral rate increases by 1% for each nine-weeks they delay. This is approximately 5.8 percent per year.
So waiting a year would increase it by more than £10 – from £179.60 to more than £190 a week.
b.wilkinson@dailymail.co.uk