State pensioners who choose to defer their state pension for one year can receive an extra £727.48 each year for the rest of their lives, according to HMRC figures. The option involves not claiming the pension immediately upon reaching state pension age, and it can also reduce tax for those still earning.
How Deferring Works
The government explains that deferring must be for at least nine weeks before increased regular payments begin. For every nine weeks deferred, the pension increases by 1%, which works out as just under 5.8% for every 52 weeks (12 months) deferred.
An example using the full new state pension of £241.30 a week shows that deferring for 52 weeks adds an extra £13.99 a week, or £727.48 over 52 weeks. This extra amount is paid on top of the regular pension for life.
The £727 figure applies to those with a full national insurance record of about 35 years. Those with an incomplete record will see a smaller cash increase but still gain 5.8% of their total pension allowance.
Tax Benefits
If pensioners are still working when they become eligible, they would normally pay tax on their state pension at their normal rate. For those earning above £51,270, 40% of the state pension would be lost to tax. Deferring means that income is not taxed now and instead boosts future payments.
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." He added that for those in great health with a history of family longevity, deferring could be a winner, and that the real issue is tax: if you are earning now but will pay tax at a lower rate later, deferring can be very worthwhile.
Expert Advice
Financial advisers Red Dot Group recommend obtaining a State Pension forecast from the government to check likely payments and identify gaps in national insurance records. They also note that deferring increases payments by around 5.8% per year, which may be valuable for those who can afford to wait.
