Deferring the State Pension
A person can increase the starting amount of their State Pension through deferment as long as they are not on certain benefits. (Details of these benefits can be found here.) Even if a person has already started claiming their State Pension they can still decide to defer it but this can only be done once and it is not normally possible if the person lives outside of the UK. The increase they gain from deferring depends on when they reach State Pension age.
Who can defer the State Pension?
Individuals who reached State Pension age before 6 April 2016
These people can choose to receive higher weekly payments or a one-off lump sum as a result of deferring their pension:
- Higher weekly payments - they must defer for a minimum of five weeks, with their State Pension increasing by 1% for every five weeks they defer (equivalent to 10.4% for every full year)
- Lump sum payment, which will include interest of 2% above the Bank of England base rate, they must defer for at least 12 months in a row
Individuals who reach State Pension age on or after 6 April 2016
These people can only take the increased amount as a weekly payment. Their State Pension increases by 1% for every nine weeks they defer (equivalent to 5.8% for every full year) and they must defer taking their State Pension for a minimum of nine weeks.
If an individual defers, how much might they receive?
There are many reasons why an individual may or may not choose to defer their State Pension. Whether they should or not will depend on their personal and financial circumstances. Essentially there are no direct costs when deferring the State Pension, but it does mean the person will not receive any State Pension income during the period of deferment.
The increase in the amount of State Pension income an individual may be entitled to receive from deferring can be calculated using the following formula:
Amount of increase = (1/number of weeks needed to defer) x (starting amount/100) x (number of weeks deferred for)
The extra amount an individual earns from deferring is increased each year in line with prices (CPI). The triple lock arrangements that apply to the basic State Pension (BSP) and new state pension (NSP) do not apply to the extra amounts earned by deferral.
The State Pension – a technical guide
Here we examine the differences between the old and new State Pensions and the options open to clients should they wish to boost their entitlement or defer their State Pension.Download the guide
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This represents a summary of our understanding of the law at the date of its last review (March 2019). Tax limits, benefits, allowances and rules are often subject to change and may change in future. Advisers and individuals should check that tax limits, allowances and rules have not changed.
The value of benefits depends on individual circumstances. Withdrawals from a pension will not normally be possible until age 55. Different options may have different effects for tax purposes, different implications for pension provision and different impacts on other assets and financial planning.