Most people don't realise that you do not have to claim your state pension once you reach your State Pension age. (If you do not know when your state pension age is then find out by using this State Pension age calculator). In fact, 90% of people immediately start drawing their State Pension as soon as they become entitled to it. However, they could boost the size of their eventual State Pension by choosing to defer it for a period of time instead.
What is the full state pension?
The full state pension for the financial year 2022-23 is £185.18 per week if you receive the new state pension and £141.85 per week if you receive the basic state pension. Your full state pension is the amount of income paid to you once you reach state pension age based on the National Insurance contributions you made during your working life. These accrue throughout your working life and are recorded through your national insurance number.
To receive the full amount of state pension, you need to have made National Insurance contributions for at least 35 years but you can receive an amount of state pension as long as you have contributed for at least 10 years and these do not have to be consecutive years.
Can you defer your state pension?
Yes, when you reach State Retirement Age (SRA) you do not automatically start receiving your State Pension, you have to opt to do so. However, if you choose to defer taking your State Pension then you can increase the amount that you will receive.
How deferring your state pension works
If you reach retirement age on or after the 6th of April 2016 then:
- For every 9 weeks you delay, your basic State Pension entitlement will go up by 1%.
- Or in other words, delay claiming your State Pension for a year, and you will get roughly a 5.8% increase in your State Pension until you die! Don't forget that the State Pension and this increase are inflation-linked.
- So roughly speaking if you delay drawing your pension for 5 years you can expect over a 25% increase in your State Pension.
If you reached retirement age before the 6th of April 2016 then:
- For every 5 weeks you delay, your basic State Pension entitlement will go up by 1%.
- Deferring your pension for at least a year will mean you'll receive, roughly a 10.4% increase in your State Pension until you die!
- A delay in drawing your state pension for 5 years could increase your State Pension payments by over 50%.
Don't forget that the State Pension and any increase to the amount that you receive are inflation-linked.
How will your State Pension increase be paid?
If you do defer your State Pension, you can either:
- receive an increase to the amount of your state pension payment or;
- take a lump sum payment equal to the missed income plus interest at 2% above the Bank of England base rate (currently 3.00%)
That might not sound great but it's better than what you would receive in interest through a lot of savings accounts had you taken your state pension and paid it into a savings account. It is also important to point out that the lump sum option is only available to those who reached state retirement age before the 6th of April 2016.
Can I defer my State Pension after receiving it?
Yes, it is possible to defer your State Pension payments after you've started receiving it but you can only defer them once.
Is a State Pension taxable?
If it exceeds the personal allowance threshold then your state pension payments are taxable at your highest rate of tax. If you choose to take the increased payment that you have gained through defering your state pension, that will subject to income tax too -
Should you defer your state pension payments?
In order to work out whether you should defer your state pension payment, you would need to weigh up the loss of income during the deferment period and the amount of extra pension income you will receive once you qualify. Even then, it can be difficult to assess whether it is truly beneficial to defer taking your state pension as you cannot accurately predict how long you would receive the increased payments for after deferring as none of us can predict when we will die. So there is a period of time which you would need to survive before you end up in a better net position than if you'd simply drawn your State Pension as soon as you were entitled to it.
The exact time frame will depend on your initial State Pension entitlement and how long you deferred taking your state pension. As a rough guide, you could say that if you are entitled to a full Basic State Pension, then following a 2-year deferral and the corresponding uplift in your pension entitlement it would take around 10 years after claiming before you'd be better off.
If you deferred for 5 years then the sweet spot to be better off would be nearer 15 years after you started claiming. But obviously, no one can predict how long they will live so there is no way to forecast this accurately.
How do you defer your State Pension?
As you don't automatically start receiving your State Pension (you have to submit a claim, either online or by completing a form and sending it in the post) then you can defer your State Pension by simply doing nothing.
How to get a state pension forecast
Getting your forecasted State Pension information is simple but this is subject to any changes in pension legislation. You can use the government state pension checker which requires you to confirm your identity by using your personal government gateway user ID and password. If you don't have this information you can create it at HMRC's online registration page.
What happens to my State Pension when I die?
Your spouse or civil partner can inherit your State Pension when you die but there are several rules and caveats to this. It is only possible for them to inherit it once they themselves are of state pension age and have not entered into another marriage or civil partnership before they reached state pension age. Even at this, there are rules around what parts of the pension can be inherited if the deceased person reached retirement age before 6th April 2016 - namely, the additional state pension can be claimed by the widow/er. It is also possible for the widow/er to receive an extra payment once they start drawing the new state pension. For full information, you should refer to the "Government guide to Your benefits, tax and pension after the death of a spouse".
Will deferring my State Pension affect my benefits?
Aside from the fact that you need to live longer to break even (as mentioned above) if you are getting means-tested benefits then any boost in your State Pension will count as income and may affect these benefits. Some benefits stop being payable once you reach state pension age regardless of whether you draw your State Pension while others like Pension Credit become available to those who qualify. You can find a breakdown of which benefits will be affected when you reach state pension age and also when you draw your State Pension at the "Turn2Us Guide to State Pension age changes - State Pension age and benefits".