Can I delay my state pension?
Although you can't start taking your state pension before state pension age (age 65 for men and women by November 2018), you can delay when you start receiving it.
Doing so could result in you receiving a higher weekly state pension, or even a lump-sum payment.
You can defer your pension for as long as you want, but you must defer the whole thing – basic state pension plus any additional state pension you've built up.
You can start deferring your pension even if you've already started drawing it, in order to earn extra money from it.
This guide explains how it works and whether or not you'll actually be any better off.
Go further: Working in retirement - an extensive list of things to consider
Deferring your state pension: taking extra pension
If you want to try to boost your state pension by delaying when you receive it, you'll have to put off claiming it for at least five weeks.
The amount you get in return varies depending on when you qualified for the state pension.
If you reached state pension age before 6 April 2016
For every five weeks you defer, you'll get a pension increase of 1%. This works out at 10.4% for every full year.
The basic state pension is £125.95 a week in 2018/19, or £6,549.40 a year
Deferring for a year will see you increase your annual state pension to £139.05 a week, or £7,230.60
If you reached state pension age after 6 April 2016
For people qualifying for the state pension after April 2016, the rate of annual increase falls from 10.4% to 5.8%, making the offer less attractive.
This partly reflects the new state pension, which is higher than the basic state pension.
The new state pension is £164.35 in 2018/19, or £8,546.20 a year.
Deferring for a year will see you increase your annual state pension to £173.89 a week, or £9,041.88 a year.
Deferring your state pension: taking a lump sum
You can delay taking your state pension and receive it as lump sum, but you'll have to defer for at least a year in order to get the lump sum payment.
Note, that this option is not available for anyone who qualifies for the state pension on or after 6 April 2016.
It's worked out as if you had put the deferred pension into a savings account where it earned 2% above the Bank of England base rate (currently 0.75%), using a compound interest calculation.
Using the basic state pension of £125.95 a week, deferring for a year will see you able to take a lump sum of around £6,730.
Do I pay tax on deferred state pension?
If you decide to take extra pension, you'll simply pay income tax on the total amount of income you have from all of your pensions.
If you decide to take the deferred pension as a lump sum, it is taxable at your current rate - you won't be pushed into a higher tax rate because you received a lump sum.
For example, if you're a basic-rate (20%) taxpayer at the time you come to withdraw the state pension lump sum, you'll be taxed as a basic-rate taxpayer, even if the lump sum you get pushes you into a higher tax bracket.
The Department for Work and Pensions will send you a declaration form when you come to claim your lump sum, where you'll have to say what rate of tax you currently pay.
HMRC will check this at the end of the tax year, and if too much tax has been deducted you'll get a refund. But if you haven't paid enough tax, you'll have to make up the difference.
Find our more in our guide to tax in retirement.
Should you defer your state pension?
If you have retirement income from other places, such as a workplace pension scheme, deferring your state pension might be a good deal - you could treat it like a really good savings account.
Deferring may also appeal if you've retired to a country where your state pension isn't subject to the UK's annual increases, such as Australia.
But you're giving up more than £6,500 in income each year - so you need to be claiming the state pension for a number of years before you earn back what you've given up by deferring.
If you reached state pension age before 6 April 2016, deferring your state pension for a year only really pays off around nine or 10 years after you decided to take your pension.
If you reached state pension age after 6 April 2016, the 'pay back' period is 17 years.
Take your health into consideration - if you're fit and healthy, you could end up with much more money as you get older.
Find out more: How much will you need to retire? - this guide will help you plan a budget
Deferring your state pension and benefits
Claiming extra state pension will affect any benefits you receive, such as pension credit, house benefit and council-tax reduction.
This is because the extra amount you get counts as income. However, if you decide to take a lump sum, these benefits won’t be affected.
If you’re deferring your state pension, you won’t build up any lump sum or extra pension for the days you're receiving any of the following benefits:
- income support
- pension credit
- employment support allowance
- jobseeker’s allowance
- carer's allowance
- incapacity benefit
- severe disablement allowance
- widow’s pension
- widowed mother’s allowance
- any type of state pension.
Should I take extra income or a lump sum?
This all depends on your circumstances, what you want to spend the money on and, of course, when you reach state pension age.
For those who reached state pension age before 6 April 2016, the extra pension offers the best deal at the moment, as the interest rate on offer - at 10.4% a year far outstrips anything you could earn on a savings account.
However, if you're in receipt of any of the above benefits, you might want to think carefully about taking the extra income in case they’re affected.
For those who reached state pension age after 6 April 2016, deferring your state pension is no longer an amazing deal.
The long wait to recoup what you've given up - 17 years - means there's a risk you could not live to earn back the extra pension you deferred for.