Thousands choose to stop receiving state pension
Those coming up to retirement can opt to postpone state pension payments. The incentive for doing so is to receive a higher weekly state pension amount, with the sum increasing the longer people delay.
The pension deferment rules and amount depend on whether people reach State Pension Age (SPA) before or after 6 April 2016.
People who reached SPA before 6 April 2016 receive the equivalent of 1% for every five weeks they delay. This works out as 10.4% for every 52 weeks. Retirees can opt to receive higher weekly payments or a one-off lump sum.
For those retiring after 6 April 2016, delaying the state pension is much less generous. Retirees gain the equivalent of 1% for every nine weeks deferred. This works out as just under 5.8% for every 52 weeks, half the amount received by those who reached SPA pre-April 2016.
Further, this group don’t have the option to take a lump sum.
Data obtained by Canada Life revealed 14,300 people chose to stop receiving their state pension in 2018/19 after initially receiving the benefit, while 1,500 people elected to re-start their state pension in the same tax year, receiving an average £44.50 a week extra.
‘Not a well understood part of the state pension system’
Andrew Tully, technical director at Canada Life, said: “State pensions form the bedrock of most people’s financial plans in retirement. Financial planning experts often talk about the merits of deferring it if the income isn’t required at your state pension age, but the ability to be able to stop / start once you are in receipt of it is not a well-known area of the system.
“DWP data shows over 14,000 people elected to stop receiving their state pension in the 2018/19 tax year. This could be for a number of reasons, most likely is the simple fact they didn’t need the income and were looking to manage their tax liability, either because they returned to work or continued in paid work, or possibly because they received an inheritance.
“This sort of flexibility is common in the private pension sector, where people are able to turn income on and off from pensions using the right products, but is not a well understood part of the state pension system. A regulated financial adviser will be best placed to not only help explain the myriad of choices available when you are considering accessing your pension savings for the first time, but will also keep you on the right track as you progress on your retirement journey.”