Delaying your state pension can earn you hundreds of pounds

Delaying your state pension can earn you hundreds of pounds

The rules for deferring a pension are more generous for people who reached state pension age before 6 April 2016.

They apply to men born before 6 April 1951 and women born before 6 April 1953. Several readers who have not yet drawn their pension have asked about those rules.

For every five weeks’ delay in claiming, the pension is enhanced by 1%. Deferring a claim by a year adds 10.4% to the pension: holding out for five years increases the pension by more than half – 52%. Jane was born on 30 October 1952 and reached state pension age on 6 May 2015 aged 621/2.

She did not claim her pension (which was £115.95 basic pension plus £12.50 SERPS and graduated pension, a total of £128.45 a week).

If she claims her pension this May she will have deferred it by three years. By then the annual rises in her pension would have brought it up to nearly £139 a week and she will also receive slightly over £43 for deferring it, making a total of £182 a week.

In future the extra paid for deferring will rise with Consumer Price Index inflation. Instead of taking a higher weekly pension, Jane could choose to have the pension she had not received paid as one lump sum.

The three years’ unclaimed pension amounts to around £20,500; and on top of that the Department of Work and Pensions will add interest each year of 2% plus Bank Rate (currently 0.5%), making a total of around £21,500.

Jane would still be entitled to draw her normal pension of £139 a week.

The pension lump sum is taxed in a special way. Jane’s income in 2018/19 including her pension is below £11,850, so she pays no tax. If the lump sum was added to her income then it could push her into paying tax. To avoid that happening the lump sum is taxed at the same rate as her other income. So in her case the lump sum is tax-free.

People who reach state pension age from 6 April 2016 and defer their pension get a lower enhancement and cannot take the unclaimed pension as a lump sum.

For more information, visit gov.uk and search for “defer state pension”.

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