Should you defer your State Pension?

24 January 2019

According to the Department for Work and Pensions (DWP), more people are continuing to work in later life with 10.4% of over 65s  still working, double the number from 20 years ago. The average age on leaving the workforce is 65.1 years for men, up from 63.1 in 1998. For women, the change is starker with the average exit age up to 63.9 years from 60.6.

Some of these people do so by choice, others because of necessity. In either situation, there is the ability to defer State Pension until a later date. However, the benefit of doing so is considerably worse than it was prior to the introduction of the single-tier pension in 2016.

People get an additional 1% of the pension for every nine weeks they defer, rather than 1% for every five weeks as it was for those who reached SPA before April 2016. There is no longer the option to take the additional benefit as a lump sum, deferring only gives a greater income when it comes into payment.

For example, if someone did not take their State Pension for one year, they would get a future State Pension which is £493 a year higher, which means people will need to live around 17 years before the money they receive from their higher State Pension outweighs the loss of the first year of income – although it does depend by how much the State Pension increases in future.

There may be benefits in deferring, for example, reducing taxable income for those who keep working, but there is a risk people will lose out financially if they die relatively early. Taking the State Pension at SPA and reinvesting any income which is not needed in an ISA or a pension is an alternative option.  

Can I boost my State Pension?

The official numbers from the DWP show significant differences remain in the State Pension. The average pension paid to men is £153.97 a week compared to £126.72 paid to women.

Many people, especially women, need to notify DWP if they are caring for elderly relatives or grandchildren to ensure they claim any national insurance credits.

If people have gaps in their national insurance record, it may be possible to pay voluntary Class 3 National Insurance contributions (Class 2 if self-employed) in order to get a higher State Pension.

If you would like more information on your Pension options please contact Chris Slatter on cslatter@ellacottswealth.co.uk or 01295 250401.