Reader Question: What interest rate do I get on my deferred State Pension?

2 min Read Published: 12 Aug 2011

Get an answer to your financial question online Reader Question:

What interest should I be receiving on the accumulated funds which I have not drawn down from my state pension?

My response:

If you choose to defer a state pension in general (although there are some exceptions), when you eventually decide to start drawing it, as long as you have put off claiming for at least 5 weeks, you will receive either a higher State Pension (than you would have got if you hadn't deferred) or alternatively you can choose to receive a lump sum, assuming you have given up your State Pension continuously for at least 12 months.

In monetary terms deferring a Basic State Pension for a year, for example, will boost your eventual pension by 10.4%. If, however, you chose to receive a lump sum it will equate to the amount of pension you would have received plus interest.

The interest rate is usually 2% above the Bank of England base rate (which is currently 0.5%). So you are looking at an overall rate of around 2.5% per annum.

For more details on deferring your state see the Department for Work and Pensions guide to State Pension Deferral.

Best Wishes

Damien

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