Save, make, understand money


Why deferring your state pension won’t be so attractive from April

Paloma Kubiak
Written By:
Paloma Kubiak

Almost one million pensioners have delayed collecting the State Pension to increase their weekly pay, a Saga study reveals. However, upcoming changes to the State Pension regime mean deferring may not be so attractive in future.

For people qualifying for the State Pension before April 2016, the perks of deferral are very generous. With the weekly state pension £115.95, deferring by just one year can mean an increase in income of 10.4% or £12.06 per week to £128.01. For those delaying their pension by five years, they can receive as much as £176.24 per week – an increase of 52% from the current amount.

However, from April 2016, there will be a new flat rate State Pension of £155.65 per week and deferring will be much less attractive (see the table below for the full comparison). Simply put, this is because the State Pension amount is rising.

Currently, people can take the extra State Pension as higher weekly payments or a one-off lump sum if they put off claiming for at least 12 months in a row. However, under the new rules, savers won’t be able to opt for the lump sum payment.

According to the study of more than 8,000 people by Saga Investment Services, it found that of those who’ve deferred, almost half (49%) have done so for up to two years.

And one in 10 deferrers (13%) have put off taking their weekly state pension for five or more years.

More than half of the deferrers surveyed (52%) have used the delay to top up their weekly pension, reporting an average increase of £22 per week.

One in 10 however, are currently enjoying a boost of £70 or more per week by deferring.

How much will I get if I defer?

The table below shows the difference in deferring now and after April:

YMoney PensionTable (002)

Gareth Shaw, head of consumer affairs at Saga Investment Services, said: “The state pension is the bedrock of financial planning in retirement, and for those that have been able to afford to hold off collecting their pay, deferral can generate a significant income boost. Our figures show that it takes around nine years for someone to recoup the state pension they’ve deferred – and with average life expectancy of a 65 year old now 84 for a man and 86 for a woman, deferring has been a good deal.”

Shaw added that deferring under the new State Pension is far less attractive as it would take more than 17 years to earn back the money deferred.