You do not have to take your state pension at state pension age. When would be best to defer your state pension until a later date?
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
The current state pension age (SPA) – the earliest age at which you can draw your state pension – is 66. It will be gradually increased to 67 between April 2026 and April 2028. A further rise to 68 is due, probably between 2037 and 2039, but the confirmation of that timing has (conveniently) been delayed until after the next general election.
Most people draw their state pension as soon as it becomes available, which requires a claim to be made. If you do not make that claim, your state pension is automatically deferred until you choose to claim it. Up until then your deferred pension will increase every week you defer, provided you defer for at least nine weeks. The rate of increase is the equivalent of 1% for every nine weeks, which works out at just under 5.8% a year.
For example, if you defer the current state pension of £203.85 a week for 52 weeks you would receive an extra £11.82 a week once it started before adding the normal inflation related uplift. The increase is not compounded, so for two years’ deferral the extra would be £23.64, and so on.
5.8% a year does not sound bad, but don’t forget, your higher pension will be paid for a shorter period, as it started later. It can take a long time for the extra payments to overtake the loss of the full pension in the deferred period. For example, for a one-year deferral you will need to wait until you are about 81 before the total pension payments you have received are higher because of deferral, assuming 2.5% CPI inflation.
When should you defer your state pension?
Nevertheless, there can be good reasons to defer. For example, if you are still working, your state pension would attract tax at your highest rate(s) which could be lower once you fully retire. There are other tax planning situations where being able to minimise income in a tax year can be useful, for example when cashing in an investment bond. Before you claim your state pension, make sure you take all your circumstances into consideration.
Retirement and pension planning
When planning for retirement, it is vital to consider all aspects of your financial planning, including private and state pensions, savings, investments, assets and liabilities and protecting your wealth. Contact us today to speak with one of our experts at Dental & Medical Financial Services for a holistic approach to your retirement.