State pensioners can legally increase their pension pot by up to £727.48 a year and avoid tax on their state pension by deferring it, HMRC has confirmed. The little-known strategy involves delaying the start of state pension payments, which adds 5.8% to the weekly amount for each year deferred.
How deferring works
Anyone who reaches state pension age (currently 66, rising to 67) can choose not to claim their pension immediately. For every nine weeks deferred, the regular weekly payment increases by 1%, equivalent to just under 5.8% for a full year. For someone receiving the full new state pension of £241.30 a week, deferring for 52 weeks adds £13.99 a week, or £727.48 over a year. This extra amount is paid for life.
The government explains: 'You must defer claiming your State Pension for at least nine weeks before you can claim increased regular payments. For every nine weeks you defer, you’ll get 1% added to your regular weekly pension payment for life.'
Tax advantages
Deferring can also reduce or eliminate tax on state pension income. Currently, state pension is not taxed if it is the only income, but for those still working, it is taxed at their marginal rate. Someone earning over £51,270 would lose 40% of their state pension to tax. By deferring, they avoid that tax now and receive a higher, tax-free (within allowances) income later.
Financial advisers Red Dot Group recommend: 'To make the most of your retirement, consider reviewing your overall financial plan. One of the first steps could be obtaining a State Pension forecast. Additionally, explore options like deferring your State Pension.'
Who should consider deferring
Money expert Martin Lewis previously commented: 'Defer your state pension, and the maths works out that if you live longer than typical life expectancy, you'll gain; if you live less, you'll lose. Live a typical lifespan and it'll be pretty neutral. So if you're in poor health, it's not really worth considering. If you're in great health with a history of family longevity, deferring could be a winner.'
He added: 'Otherwise the real issue is tax – if you're earning or have a decent income now, but'll pay tax at a lower rate later on, then deferring can be very worthwhile.'
Eligibility and limitations
The deferral option applies only to the new state pension, introduced in April 2016. Those already receiving the old state pension cannot defer. The £727.48 figure is based on the full new state pension amount, which requires about 35 years of National Insurance contributions. Those with incomplete records will see a proportionally lower increase, but still 5.8% of their entitlement.
The triple lock may affect future tax thresholds, but current rules make deferral a legitimate way to boost retirement income. The government recommends checking your state pension forecast via the free online service before deciding.
