Deferring your State Pension: how much can you get and is it worth it?


Updated on 08 November 2016

You can boost your State Pension by up to 10.4% each year by delaying it even if you have retired already!

Trick to boost your State Pension

There’s no way to access your State Pension benefit before you hit your State Pension age but you can delay when you receive it.

This might sound like a weird thing to want to do but it could result in you getting higher weekly payments or even a lump sum boost of up to 10.4% for each year you put it off.

This guide takes a look at how deferring the State Pension works, what you could receive and the pros and cons of doing it.

How deferring your State Pension works

Those nearing State Pension age have the option of delaying when they receive it.

Your pension will be automatically deferred until you claim it.

You can also choose to defer your State Pension even if you’ve already started claiming it. This loophole is not often mentioned but it’s entirely possible to ‘unretire’ and boost your income.

How much can you get?

The amount of extra State Pension you can get will depend on when you reach State Pension age and whether you are entitled to the basic State Pension or the new State Pension.

If you reached State Pension age before April 6, 2016

If you reached State Pension age before April 6, 2016 you’re eligible for the basic State Pension and you can get 1% extra for every five weeks that you delay claiming it. This amounts to 10.4% for every full year you put it off.

So for someone getting the full basic State Pension of £119.30 a week or £6,203.60 a year, delaying for 12 months will get you an extra £645 a year.

You can choose to take this extra income through higher weekly payments. Alternatively, you can go for a one-off lump sum option.

To get a one-off lump sum you must defer for at least 12 months in a row. The amount you get is worked out as if you had put the deferred pension into a savings account where it earned 2% above the base rate (which is currently 0.25%).

So for someone earning the basic State Pension of £119.30 a week, over a year you'd earn £6,203.60. Deferring for a year will allow you to take a lump sum of £6,343.18.

If you reached State Pension age on or after April 6, 2016

If you reach State Pension age on or after April 6, 2016 you can get 1% extra for every nine weeks you defer the new State Pension. This equates to a 5.8% boost if you delay for a full year.

So for someone getting the full new State Pension of £155.65 a week or £8,093.80 a year deferring for a year will earn an extra £468, which you take through higher weekly payments.

Those who reach the State Pension age on or after April 6, 2016 don’t have the option of a one-off lump sum payment.

Should you defer your State Pension?

Deferring your State Pension means giving up access to your money for a number of weeks or even years.

So this only really makes sense if you have alternative sources of retirement income like a personal or workplace pension that can support you during those periods.

You should also consider the time it will take for deferring to pay off.

For people that qualify for the State Pension on or after April 6, 2016 the rate of annual increase drops from 10.4% to 5.8% making the offer less attractive.

Those who retire on or after April 6, 2016 will have to live for around 17 years to reap the benefit from delaying their claim for one year at the rate of 5.8%.

Those who retire before April 6, 2016 only have to live around 10 years to see the benefit of deferring for one year at the rate of 10.4%.

Are Class 3A voluntary contributions a better option?

Those who reached State Pension age before April 6 April 2016 can opt to boost their State Pension using Class 3A National Insurance voluntary contributions, but only until April 5 2017.

You can choose to top up your State Pension by between £1 and £25 a week equivalent to an annual boost of £52 or £1,300 a year for the rest of your life. Read more about this in Boost your State Pension by £25 a week

However, you will need stump up a lump sum in order to purchase this boost. The amount you pay depends on how much extra income you want and how old you are when you make the contribution. You can work out how much you will have to pay using the State Pension top up calculator.

You should work out how much it would cost you for the amount of extra income you want to get by deferring or using the top up system to see which one works out as better value for you.

Of course if you don’t have a lump of savings to hand over you won’t be able to top up your State Pension using Class 3A voluntary contributions and deferring your State Pension will be the best way to boost your income.

How long can you defer?

You can defer your State Pension for as long as you like.

However, you must defer the whole lot. So for those that are eligible for the basic State Pension that means delaying any additional State Pension too.

What if I’ve already started claiming my State Pension?

You can choose to defer your pension even if you’ve already started claiming it.

This won’t suit everybody, but if you’re still working or have some other income you could effectively ‘unretire’ to boost your State Pension income.

Who is and isn’t eligible?

Anyone can build up extra State Pension unless you are in prison or are on certain benefits or tax credits.

You won’t be able to build up extra State Pension when you receive:

  • Income Support;
  • Pension Credit;
  • Employment and Support Allowance (income-related);
  • Jobseeker’s Allowance (income-based);
  • Universal Credit;
  • Carer’s Allowance;
  • Incapacity Benefit;
  • Severe Disablement Allowance;
  • Widow’s Pension;
  • Widowed Parent’s Allowance;
  • Unemployability Supplement.

You also can’t get the extra boost to your State Pension during any period your partner gets:

  • Income Support;
  • Pension Credit;
  • Universal Credit;
  • Employment and Support Allowance (income-related);
  • Jobseeker’s Allowance (income-related).

Deferring the State Pension and benefits

By taking extra State Pension as higher weekly payments the amount you get from certain benefits could be impacted. These include:

  • Income Support;
  • Pension Credit;
  • Universal Credit;
  • Employment and Support Allowance (income-related);
  • Jobseeker’s Allowance (income-related);
  • Housing Benefit;
  • Council Tax Reduction;
  • Tax Credits.

For those that reached State Pension age before April 6, 2016 and choose to take extra income as a lump sum, Tax Credits may also be reduced.

Is the extra cash taxed?

The extra State Pension you earn will be taxed in the same way as the rest of your State Pension.

What about inflation?

The extra amount you get because you deferred your State Pension will increase each year based on the Consumer Prices Index measure of inflation.

However, if you live abroad in certain countries this may not happen. Check the Gov.uk website for more information.

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