Delaying taking your state pension could deliver thousands of pounds in extra retirement income, new analysis from AJ Bell shows.
Someone who defers receiving the state pension for 12 months will get a 5.8% boost to their income for the rest of their lives. This is equivalent to around £10.41 a week for someone entitled to the full level of £179.60 a week in the current tax year.
Assuming the state pension increases by 2.5% each year (the minimum amount it increases under the triple lock), it could take 15 years for the total retirement income you receive to exceed what you would have got if you hadn’t deferred, AJ Bell says.
Here, Which? looks at how much extra you could get in more detail, and provides tips on how else you can boost your state pension.
How does state pension deferral work?
Although you can’t start taking your state pension before state pension age, you can delay when you start receiving it.
The state pension age is currently 66, with legislation mandating an increase to 67 in 2028. The full flat-rate state pension is worth £179.60 a week in 2021-22, although not everyone will get this amount.
For example, people who have a National Insurance Contribution (NIC) record below 35 years will have a deduction applied, as will those who ‘contracted out’ of the additional state pension before 2016 in return for lower NICs.
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.
- Find out more: how state pension deferring works
How much will deferring boost my state pension?
For anyone who reached state pension age on or after 6 April 2016, the deferral rate is 1% for every nine weeks you defer, or around 5.8% for every 52 weeks. This increase is applied to the flat-rate state pension, and you need to defer for at least nine weeks to qualify for an uplift.
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 table below shows how much extra you can get in state pension payments if you defer for 12 months, and live to a certain age.
So say you lived until 90, you could receive over £7,000 more in retirement income by deferring the state pension by 12 months. If you reach your 100th birthday, the decision to defer could pay off to the tune of £18,000.
|70-years old||80-years old||90-years old||100-years old|
|Total retirement income if state pension deferred for 12 months||£31,150||£153,341||£309,756||£509,980|
|Total retirement income if state pension is taken at age 66||£38,781||£154,274||£302,114||£491,362|
Source: AJ Bell. Assumptions: Based on full flat-rate state pension of £179.60 a week (2021/22) deferred for 12 months; state pension age = 66; state pension increases each year by 2.5%
You could get even more if the triple lock increases by more than 2.5% in some years. Under the system the state pension increases by the highest of growth in wages, inflation as measured by the Consumer Prices Index (CPI) or 2.5%.
The government takes September’s CPI inflation and uses the three-month average of weekly earnings from July to help work out what the uprating will be. In the 2020-21 tax year the state pension increased by 3.9% to match the average earnings increase seen by UK workers in July 2019.
- Find out more: pension changes for the 2021-22 tax year
Should I defer my state pension?
If you’re healthy and feel you can work a bit longer, deferring could make a huge difference to your pay in retirement.
If you have retirement income from other places, like a company pension, deferring could 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 nearly £7,000 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.
Not everyone wants to work for longer, or it may not be possible for you. So if you need money as soon as possible, or aren’t in good health, it may not be the best route to go down.
How else can I boost my state pension?
There are other ways to boost your state pension; we’ve outlined how you can do this below.
1) Check your state pension
It’s really important to check your state pension, to see if you need to make any changes to boost your payments, like working for longer.
To find out how the state pension will supplement your private pension savings, get your state pension forecast at gov.uk, which will tell you how much you’re likely to receive.
Find out your retirement age using our state pension age calculator.
2) Top up your state pension
You need 35 years’ worth of NICs to get the full state pension and 10 years to get anything at all. If there were years where you didn’t get enough NI credits to give you a ‘qualifying year’, you may find you have a gap on your NI record.
You can top up your record by making Voluntary ‘Class 3’ NICs. The cost of filling gaps from the 2020-21 tax year is £15.30 a week. Usually, you can only pay gaps in your record from the past six years – but depending on your age, you may be able to fill gaps from even further back.
3) Check if you’re eligible for pension credit
Pension credit tops up your pension if you’re on a low income. It’s made up of two parts:
- Guarantee credit – tops up your weekly income so it reaches a minimum sum set by the government.
- Savings credit – an extra payment from the government to reward you for saving for retirement.
4) Check the right parent is getting child benefit
For two-parent households, where only one parent is working and is also the parent in receipt of child benefit, the parent who is not working or a lower earner could miss out on NI Credits, which counts towards their state pension. One year of missing contributions could cost £260, according to pensions consultancy Lane Clark & Peacock.
The good news is that if this applies to you, you can transfer the working or higher-earning parent’s credits to the unemployed or lower-earning parent.
To do this, you can contact the Child Benefit Office to arrange to transfer the child benefit claim into the name of the parent or carer who isn’t working.