Should I defer taking my state pension?
You could save hundreds in tax if you're still earning
You don't have to take your state pension when you hit state pension age, currently age 66. If you defer it, you get paid a higher amount - in fact - up to 5.8% a year more. But you'll receive it for a shorter time. Does it add up?
What is 'deferring' the state pension?
You don't have to take your state pension as soon as you're entitled to it - currently when you reach age 66 for both men and women. And in fact, if you don't actively claim your state pension, it'll be automatically deferred.
By not claiming your pension when you're entitled to it, you're forgoing income from the state. To compensate for this, you'll get a bigger state pension amount when you do choose to claim it.
Already started claiming your state pension? You can still defer
If you've already started receiving your state pension, you can opt to stop receiving it for a time, for example if you're going back in to the workplace for a few years. But you can only do this once – in other words, you can't start receiving it then stop receiving it, then start and stop it again.
How much extra do I get if I defer?
Your state pension will increase every week you defer, as long as you defer for at least nine weeks.
- For every 9 weeks you defer, you will get an extra 1%, which is around an extra £2 a week.
- If you defer for a full year, you get 5.8% extra, which is £11.82 a week.
On current figures, a one year deferral would net you an extra £614 a year on your state pension, for life. Yet, do note that to get this, you'll have given up £10,600 in state pension that you could have claimed in the first year.
In general, if you defer for any amount of time, you'd need to live for around 20 years after taking your state pension to even out the amounts... which is around the time an average 66 year old is expected to live.
The longer you live, the more you can gain
This is very relevant to the choice of whether to defer.
If you're in poor health and worried about life expectancy then deferring isn't likely to help as you're less likely to hit the 20-year breakeven point.
Yet if you've a family history of longevity, then you may just beat the odds and profit.
There's no crystal ball on this, though the Office for National Statistics has a 'What is my life expectancy?' calculator. It shows that on average a man aged 65 has 20 years to live and a woman aged 65 has 22 years.
Yet living longer isn't a real reason to defer. The real reason is tax, as we explain below.
The best reason to defer is if you'll pay less tax later on
If you're 65 and still have an income, but you're likely to drop a tax bracket later, for example, when you actually retire, this is the real boon of deferring your state pension.
The state pension counts as taxable income, so add it to your regular income and it's taxed at your highest tax rate, whether that's 20%, 40% or 45% (rates in Scotland differ, but the principle's the same).
Yet if you don't NEED the extra income now, and you know you'll drop a tax bracket once you do stop working, it's definitely worth considering deferring your state pension, and claiming it once you're in that lower tax bracket.
That way you get to keep more of your state pension, as well as benefit from the extra payments.
BUT beware missing out on pension credit
As mentioned above, for every year you defer, you could get increase your state pension by an £614 a year – for life. But bear in mind that this extra money could mean you might miss out on 'pension credit', a vital pension top up that might otherwise have been eligible for.
What is pension credit?
Pension credit is a benefit for people on low incomes over state pension age. If you're single and have a weekly income below £201.05, or in a couple and have a weekly income below £306.85, you could qualify and get the 'guarantee' portion of pension credit to top up you up to these weekly amounts.
Even if you find out you're only entitled to a small amount – some people only get a few pounds – of pension credit, it's still worth claiming as it means you can automatically qualify for £1,000s worth of other benefits, discounts and perks, including the Government's 2023/24 cost of living payments, worth £900.
For all the ins and outs see our "pension credit - what help can I get?" guide.
Why deferring your state pension could mean you miss out
If you defer your state pension and end up earning over the pension credit cut-off amount – even by a penny – you will not qualify.
So if you're thinking of deferring, you need to take into account how much extra your deferral will likely bring you, and weigh it up against the tax savings (if you're still working) and whether or not the extra state pension could disqualify you from pension credit.
Consider this hypothetical example:
Jane is set to reach state pension age in February this year. She is single and earns £10,500/year from working part-time. Her starting weekly state pension is forecast to be £189.90/week.
If she defers her state pension for one year, she'll have sacrificed one year's worth of state pension, worth £9,874.80. But when she comes to claim, she will get an extra £10.97/week, bringing her weekly state pension to £200.87/week. Provided she meets the other criteria, she still has a good chance of qualifying for some pension credit, and all the relevant 'gateway benefits'.
If she defers her state pension for two years, when she comes to claim, she will get £11.61 extra a week, bringing her weekly state pension to £212.48 per week. However, not only will she have now sacrificed two years' worth of state pension (£9,874.80 x 2 = £19,748), but she'll also be disqualified from pension credit, as her new weekly income takes her above the threshold.
On benefits? You can't defer taking your state pension
- Income Support
- Pension Credit
- Employment and Support Allowance (income-related)
- Jobseeker’s Allowance (income-based)
- Universal Credit
- Carer’s Allowance
- Incapacity Benefit
- Severe Disablement Allowance
- Widow’s Pension
- Widowed Parent’s Allowance
- Unemployability Supplement
If you need help understanding how your benefits might be affected by receiving or deferring your state pension, contact your local Jobcentre Plus.
Do I need to claim the winter fuel payment if I defer taking my state pension?
Yes, if you defer your state pension, you need to claim the winter fuel payment but you only need to do this once.
How else can I boost my state pension?
There are a couple of other ways you may be able to increase your state pension amount:
- By claiming free pension-boosting national insurance credits to fill gaps in your national insurance record. The most common one is claiming Grandparents' childcare credits. Read our NI contributions guide, which lists all the other scenarios where you could potentially be missing out on free NI credits
- Buy 'extra' pension years. If you've got spare cash, it's possible to buy some missing national insurance qualifying years, which could turn £800 into £5,500 in your state pension. To find out if you can benefit from this and if it's right for you, see our guide to voluntary national insurance contributions.
Have your say in our forum!
We'd love to know your thoughts and experiences of deferring your state pension. Let us know if our Forum thread.
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