Should I defer my state pension?
Most people choose to draw their state pension as soon as possible – especially as the goalposts keep moving. The state pension age has changed every year since 1987, and it’s still on the move.
Currently, the state pension age is 66. Between April 2026 and April 2028 it’s going to be gradually increased to 67, and then again to 68 between 2037 and 2039. Although until after the next general election there won’t be confirmation of that (conveniently).
In order to draw your state pension, you have to make a claim. However, if you choose not to claim, your state pension is automatically deferred. 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.
It’s important to remember that whilst 5.8% sounds good, 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.
So should you defer?
There can be good reasons. If you’re 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.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
