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Can you defer your state pension, and should you?

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29/01/2020
Large numbers of people are now working into later life, either by choice or because they need the income.  

Data from the Office for National Statistics shows the number of people aged over 70 in full- or part-time employment reached a peak of 497,946 in the first quarter of last year.

What many of these people may not realise is they can boost their future income by delaying their state pension payments.

If they defer their state pension – in other words, do not claim it as soon as they reach state pension age – the government will reward them by increasing their payments when they do start claiming.

Those who have already started claiming their state pension can pause payments and receive more when they start claiming again. Although they can only do this once.

How much will you get for deferring?

Your state pension will increase every week you defer, as long as you defer for at least five weeks or nine weeks depending on when you reached state pension age.

If you reached state pension age before 6 April 2016, your state pension will increase by the equivalent of 1% for every five weeks you delay. The extra amount is paid with your regular state pension payment.

For example, if you get £129.20 a week, you’ll get an extra £13.44 a week by deferring for 52 weeks, assuming there is no annual increase in the state pension. If there is an increase, you could end up receiving more.

If you reached state pension age on or after 6 April 2016, your state pension will increase by the equivalent of 1% for every nine weeks you defer.

So, if you get £168.60 a week (the full new state pension), you’ll get an extra £9.74 a week by deferring for 52 weeks.

If you defer your state pension for at least 12 months in a row, you can get a one-off lump sum payment which will include interest of 2% above the Bank of England base rate. This only applies to people on the old state pension, so those who reached state pension age before 6 April 2016.

Is deferring right for you?

This comes down to whether or not you need the income. If you can happily live without it, deferring can generate a significant income boost.

This is especially true for higher rate taxpayers with alternative income sources. The state pension is treated as taxable income so they will be paying 40% income tax on their state pension payments as their other earnings will have mopped up their whole annual personal allowance – the amount of income you do not have to pay tax on.

If they defer and wait until they have no other earnings to claim, they will have their full personal allowance, which is currently £12,500, to set against their state pension so they should end up paying less tax.

That’s in addition to the bigger state pension they’ll get by deferring.

 

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