Should you defer your state pension?

Published by Rachel Lacey on 13 April 2015.
Last updated on 11 September 2017

You can apply to claim your state pension from four months before you reach your state pension age. However, if you can get by without it for a period, the government offers the incentive of higher weekly payments when you do come to claim.

You do not need to do anything to defer taking your state pension – if you do not claim it, it will automatically be deferred. Those who are already claiming their state pension can also choose to halt their payments and defer for a period, if they can afford to temporarily forgo their money. This can be done by contacting the Pension Service.

The benefits of deferring

The deal you will get depends on when you reached state pension age. If this was on or after 6 April 2016 (so men born after 5 April 1951 and women born after 5 April 1953) you will get an additional 1% of pension for every nine weeks that you defer. If you defer for one year this works out at a little under 5.8% and will see your annual pension of £8,296.60 (assuming you receive the full state pension) boosted by an additional £479 every year.

These figures don’t factor in inflation-linked increases however so you could get more.

Currently the state pension is protected by the so-called ‘triple lock’ which means it rises by the greater of inflation, wage growth or 2.5% every year. However, deferral increases are not protected by this guarantee and only increase in line with the consumer prices index (CPI), the government’s preferred measure of inflation.

This means that although the state pension rose by 2.5% in April 2017, the uprated portion only rose by 1%.

People who reached state pension age before 6 April 2016, before the new state pension was introduced (so men born before 6 April 1951 and women born before 6 April 1953) get a better deal.

These individuals are entitled to an uplift of 1% for every five weeks that they defer, which takes increases to 10.4% for every full year that they defer. This will boost an annual payment of £6,359.60 (the maximum paid under the old-style basic state pension – increases don’t apply to additional state pension payments) by £661 every year. Again, this figure does not include inflation related increases which may be paid, so you may get more.

In addition to the higher rate of uplift, people that reached state pension prior to 6 April 2016 are also able to take their increase as a one-off lump sum, instead of taking a higher weekly payment. This includes interest paid at 2% above bank base rate, making it a better paying savings plan than most savings accounts.

Does deferral make sense for you?

If you’ll be better off deferring or halting payments ultimately comes down to your age and how long you expect to live.

Steven Cameron, pensions director at Aegon says: “Broadly speaking [if you reached state pension age after 6 April 2016] you would need to live a further 17 years before deferring for one year starts to make sense.”

He adds: “Under the old rate [available to those who reached state pension age before 6 April 2016] it only takes nine years to break even.”

Our examples assume a deferral period of just one year. However, if you defer your state pension for more than one year, it will take longer to recoup the money you’ve given up. According to figures from Fidelity International if you reached state pension age after 6 April 2016 and deferred your state pension for five years, it would take 20.5 years to break even.

You also need to consider whether you are prepared to give up money in the short term on the promise of more in the future.

“It’s a very personal decision,” says Mr Cameron. “It also varies by health for example. Women tend to live longer than men too so they may arguably get a better deal out of it.”

According to the ONS between 2010 to 2012 (the latest figures available) the average life expectancy at age 65 in the UK was 18.2 years for men and 20.9 for women.

This could make deferring state pension a very tempting option if you are eligible for the pre-2016 rate, but less clear cut if you are not.

Richard Parkin, head of pensions at Fidelity International says: “Based on ‘average’ life expectancy it may look like it’s worth doing. But you need to consider is it worth taking the risk?”

You also need to consider when your need for income is likely to be greater – in your 60s, or in your 80s? “On paper, it might look attractive but you may simply decide that you want the money now.”

However, your decision may not just come down to your age and an educated punt on your life expectancy. In the age of pension freedoms, where retirees have more options with regards to how they structure their retirement income, deferring your state pension may give you the opportunity to reduce your tax bill.

Mr Cameron explains: “Your state pension is classed as income from a tax point of view. This means you can use it to keep your income below the personal allowance [£11,500 for 2017/18].”

The same applies if you have a higher level of income or are still in paid employment, adds Mr Parkin.  “If taking your state pension now means that you will pay more tax than if you took it in a few years’ time it’s worth considering and could be particularly useful for those who are working beyond retirement age.”

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Leave a comment

This article was excellent

This article was excellent and very informative.

Don't think this article was

Don't think this article was proof-read before printing - it quotes a figure of £82960.60 state pension per annum...

Oh it's probably the MPs

Oh it's probably the MPs pensions they quoted

Hi there, thank you for

Hi there, thank you for spotting. This has now been corrected - the true figure is £8296.60. 

Thanks for reply - glad all

Thanks for reply - glad all correct now, though the higher figure would have been a nice pension to look forward to!

I was given to understand

I was given to understand that if I deferred my pension and died before claiming it, the money would not be paid to my widow, but would be retained by the State.

I believe deferring was the

I believe deferring was the best thing to do because when you finally accept your pension the amount you receive you probably wouldn't have put away so a nice surprise will await you.

I’ve been a subscriber to

I’ve been a subscriber to Moneywise for many years, and it’s an excellent financial magazine! I’ve read many articles in print and online, regarding pensions, and this is the first time I’ve seen an answer to my question about deferring the state pension ie ‘increases don’t apply to the additional state pension payment’. Many thanks.

Whether one lives to a very

Whether one lives to a very ripe age or not can never be predicted but if one defers ones pension to receive additional income the benefit will be worthwhile in old age. However if one dies early and you have received no long term benefit and therefore lost out who cares ? You're dead !

Yes, the whole thing is an

Yes, the whole thing is an actuarial gamble isn't it. Whilst I really appreciate seeing the figures down in print, I don't think I will be doing it as I have had congenital cardiac problems and am a WASPI woman so retirement age for me has jumped up significantly percentage-wise. It is very much a decision for the individual. I presume also that the much valued bus pass would also be deferred?

I'm still working at 60 and

I'm still working at 60 and am about to receive my pension from my previous career. Should I put more money from my salary into my NEST pension which my current employer set up? I'm paying basic rate tax and what's left of my student loan.

A government pension is a

A government pension is a "promise" not a contract. If you trust the government to make good their promise go ahead and consider deferring.
But I don't think you'll see many public sector workers taking up the offer having had their promised pensions reneged upon..

Hi, good information, I was

Hi, good information, I was born 1949 and deferred my state pension (about 5 years now) I wanted to ask about the additional stare pension I have? is that treated the same way ie the same interest rates apply to the additional (old serps)? Thanks