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How to defer your state pension

Over one in 10 working past state pension age

Working beyond retirement can bring a pension boost

The number of people working beyond state pension age has risen from 753,000 in 1993 to 1.4m in 2011, according to the Office for National Statistics (ONS).

The rise in over 65s working after the age when they can take state pension has been mainly attributed to improved health and well-being, as well as a desire to remain active in society. But financial pressures and a lack of retirement savings have pushed many to continue working. 

Working beyond state pension age

Around two thirds of those who carry on working do so on a part-time basis. London and the South East has the the highest employment rate for older workers (14.1%), while the North East has the lowest (8.2%).

Until 2010, state pension age (SPA) was 60 for women and 65 for men. Since then it has been gradually rising for women (it is currently 61) and will be 65 by 2018. In 2020 state pension age will rise to 66 for both men and women.

With this in mind, Which? guides you through the ways you can defer your state pension if you decide to carry on working. 

Deferring state pension  

Although it is possible to draw state pension while you carry on working, if you earn enough not to need it, you can opt to take it later instead. The rules work like this:

  • For every 5 weeks you defer your state pension you earn interest at 1%. 
  • If you put off claiming for an entire year you get 10.4% extra. 
  • The pension you receive is based on the current rate, so includes any increase that has occurred during the time you have not been claiming.   

The higher rate pension you receive after deferring lasts for life, so it can be highly beneficial. There is no limit on how long you can defer, so you might postpone taking your pension for more than one year. It is possible to defer state pension after you have already started to receive it, although you can only do this once.

Are you thinking of deferring your state pension or delaying retirement? Have your say on Which? Conversation.

Lump sum deferred state pension

If you defer state pension for 12 consecutive months, you can opt to take it as a lump sum rather than additional pension income. You get the amount you would have been entitled to claim, plus interest. This is Bank of England Base Rate (currently 0.5%) plus 2%. The money is taxable at your normal rate but can’t push you into a higher tax band. 

Deferring private pension

If you carry on working beyond state pension age, it may also be possible to defer private pension. If you are in a defined benefit (DB) or final salary scheme you may be credited with extra years (boosting your final pension). 

In a defined contribution (DC) scheme, you might decide to leave your money invested and put off buying an annuity. Going into income drawdown in this way allows those with DC pensions to defer taking benefits but it is advisable to take qualified advice. 

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