Optimum strategies for UK state pension deferral with particular reference to partner’s right to inherit benefits

John Dagpunar

A person who defers a UK state pension does so with the prospect of taking an extra pension or lump sum on termination of the deferral. A married or civil partner of a deferrer can inherit these benefits on the death of the deferrer. We propose a mathematical model for maximising the expected joint benefit, extending the work of Dagpunar (2015) regarding a deferrer without partner. The model applies to a deferrer who attained state pension age before 6 April 2016, the partners of others having no right to inheritance. Features of the model include different accrual rates for the various components of a state pension. We show that the scheme offers very generous joint benefits compared with no deferral. It provides an interesting example of dynamic decision-making under uncertainty.

Keywords: pensions, decision-making, deferred benefits, risk, probability, life expectancy, income inequality, inter-generational fairness, CPI, Triple Lock

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