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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