Deferring the State Pension

Deferring the State Pension

You are not obliged to draw all of your State Pension when you reach the State Pension Age – you can defer the payment of your State Pension and, in doing so, receive a higher benefit in the future. However, it is only possible to defer receiving the State Pension once.

Options for Deferring the State Pension

There are two options available to you if you opt to defer your State Pension payments, and both have conditions that must be met.

1. Increased Your Income

You will receive an increased income if you defer your pension as follows:

  • Your pension is deferred for a minimum of five weeks.
  • For each weak your pension is deferred, your income will be increased by a rate of 0.2% per (1% for every five weeks of deferral). This equates to 10.4% per annum.
  • Once the deferment ends, you will begin to receive your higher payments, as normal.
  • The higher payments you receive will be increased each April at the same rate as the State Pension.

2. Receive A Lump Sum Payment

  • If you defer your pension for at least twelve months then you will be able to choose whether to benefit from your deferment in the form of increased income (as outlined above) or receive a lump sum payment.
  • The lump sum will be equivalent to the amount of pension you would have received plus an interest payment of 2% above the Bank of England base rate.
  • Once the deferral period ends, you will begin to receive your higher payments as normal.

Tax Benefit Of Lump Sum Payment

The lump sum you receive cannot move you into a higher tax bracket; it will be taxable at the same rate as any other part of your income. For example, if your taxable earnings are below your personal allowance at the time the lump sum is paid, it will be paid tax free even if the value of the lump sum pushes your earned income over the personal allowance threshold which, ordinarily, would have resulted in an extra tax charge.

Three Months To Choose

You have a maximum of three months to choose whether you wish to take the deferred amount as an increased income or as a lump sum.

Eligibility To Defer Your State Pension

  • There are a number of conditions that prevent you from building up extra Basic State Pension or a lump-sum payment whilst deferring your benefit. If you have spent any days in prison after conviction of a criminal offence or you receive any of the following benefits, you will not meet the conditions:
  • other State Pensions (not including Graduated Retirement Benefit or shared additional pension)
  • Pension Credit
  • Income Support
  • Employment and Support Allowance (income based)
  • Universal Credit
  • Carer’s Allowance
  • Short-term Incapacity Benefit
  • Severe Disablement Allowance,
  • Un-employability supplement
  • Widow’s Pension
  • Widowed Mother’s Allowance