Deferring your pension set to be worth less from 2016

Currently, if you delay for a year, you'll get the full pension plus 10.4% extra. That's because for every five weeks you defer claiming the state pension after hitting retirement, your future weekly allowance is increased by 1% (see our State Pensions guide to make the most out of your retirement).

But Pensions Minister Steve Webb has proposed cutting this to 1% every nine weeks.

So if you retire on or after 6 April 2016 and delay for a year, you'll get the full pension and around 5.8% extra – nearly half the current gain.

The proposals are expected to be approved by Parliament later this year.

Who's affected?

Women born on or after 6 September 1952, and men born on or after 6 April 1951 will be affected by the plan.

When you get the state pension depends on the Government's official retirement age, which is dependent on when you were born and your gender.

If you're already retired and deferring your claim, you won't be affected if these rate changes are given the go-ahead.

Current rate 'excessively generous'

Tom McPhail, head of pensions research at investment firm Hargreaves Lansdown, says it currently takes about 11 years for someone to benefit from deferring their pension for a year, but this would increase to about 19 years under the new system.

He adds: "The current system of 10.4% increases is probably excessively generous, given the improvements we've seen in life expectancy over the past 20 years.

"So any cut in the rate now should be judged in the context of what a good deal investors have enjoyed until now."

So is it worth deferring to increase the payout?

The answer isn't simple. Under the current system it is sometimes worth deferring, as you may get a larger overall payout.

According to the Office for National Statistics, a healthy 65-year-old man is expected to live, on average, for another 18 years and a 65-year-old woman is expected to live for another 21 years.

So the odds suggest that if you can afford to defer, you're probably better off doing so. But there's always the risk you could die before you ever get any benefit.

This is a decision you'll need to make based upon your circumstances.

"For anyone in good health this may still be attractive. But for anyone with limited life expectancy it almost certainly won't be worth doing," McPhail says.

What does the Government say?

A Department for Work and Pensions spokesperson says: "It is important to set a fair deferral rate for the new state pension – which is why we asked the Government Actuary for independent advice.

"The new rate will take into account the value of income given up by delaying claiming the new state pension – so it is fair for people who defer their pension as well as those pensioners who don't."