Annuity providers work on the basic principle that the longer they have to pay you, the less the payment amount will be. Therefore, as you get older (and your life expectancy gets shorter), annuity rates generally improve. Consequently, deferring your pension payout for a few years could almost certainly result in a higher income.

There are three main reasons why you might consider deferring payments from your pension: One, interest rates are historically low – and waiting may secure a more favourable annuity rate should interest rates go up; Two, you may decide to continue in paid employment, which will support you in the short-term; Three, you may want to purchase a joint life annuity, but have a younger partner. Waiting until that partner is older should also help secure a better rate on the annuity.

On retirement, you can take a tax free lump sum of 25% of your pension fund. However, unlike some employer’s schemes where, if you take your lump sum, you must also buy an annuity at the same time, for a personal pension plan, the Government allows you to defer the annuity purchase – potentially up to age 75 (when your situation must be reviewed). In the interim, the money remains invested, perhaps even benefiting from growth if market conditions are favourable, although of course, if markets are not, the value could also fall.

There is even now a deferment option for the state pension scheme. Since April 2005, for every 5 weeks you put off claiming your state pension after state retirement age, your later payments increase by 1%. If you defer for a year, you get 10.4% extra – currently worth over £470 per year on a full state pension (based on 2008/09). Alternatively, you can take the extra as a lump sum payment – equal to the amount of pension you have forgone, plus a little for the interest it would have earned in a bank account. While this approach may not be right for everyone, if you can afford to defer it could be financially worthwhile.