I am aged 65 and I will be eligible to draw my state pension later this year. However, I intend to carry on working another few years.

I am aware that I can effectively defer my state pension by not opting to take it. Is there any particular advantage to deferring or would I be better off to take the state pension as soon as I can?

Alex

Tom Selby, AJ Bell Head of Retirement Policy, says:

The UK state pension age is currently 66, although it is due to increase to 67 by 2028 and then again to 68 by 2046. The full flat-rate state pension is worth £203.85 per week (around £10,600 per year) and is protected by the ‘triple-lock’, a political promise to increase the benefit by the highest of average earnings, inflation or 2.5%.

However, not everyone will get the full state pension amount. You need to have 35 qualifying years on your National Insurance record to be entitled to the full state pension, with lower amounts paid to those with shorter records. You need to have a 10-year National Insurance record to be entitled to any state pension under this system.

Other factors, such as whether you ‘contracted-out’ under the old state pension system, will also affect your entitlement – although it is possible to buy extra National Insurance years to boost your state pension.

The government recently confirmed the deadline for people to buy extra National Insurance years going back to April 2006 has been extended until 2025. You can read more about how this works and the things you need to consider when paying voluntary National Insurance in this article. 

State pension deferral: Key points (for those reaching state pension age after 5 April 2016)

- You must defer your state pension by at least nine weeks in order to get an uplift

- Your state pension will increase by 1% per nine-week deferral, or just under 5.8% for a year

- This additional state pension entitlement will rise in line with inflation and NOT the triple-lock

- Based on someone receiving the full state pension amount (around £10,600) in 2023/24, a one-year deferral could boost their income by £11.82 per week for life

- It could take around 16 years for a one-year deferral to pay off financially*

*Assumes the full £10,600 state pension is deferred for one year and increases by 2.5% per year

YES, YOU CAN DEFER

It is possible to defer taking your UK state pension – and you’ll receive an uplift for doing so. The level of this uplift will depend on when you reached state pension age.

For those who reached state pension age before 6 April 2016, the rate of uplift is 1% for every five weeks you defer, subject to a minimum deferral period of five weeks. This works out at a 10.4% increase in your state pension if you defer for 52 weeks.

Based on the 2023/24 basic state pension of £156.20 per week, this works out at an extra £16.24 per week for life if you deferred for 52 weeks.

For anyone who reached state pension age on or after 6 April 2016, the deferral rate is 1% for every nine weeks they defer, or just under 5.8% for every 52 weeks. You have to defer for at least nine weeks in order to benefit from this boost.

This increase is applied to the flat-rate state pension. Based on someone receiving the full flat-rate state pension for 2023/24 of £203.85 a week, a person who deferred for 52 weeks would get an extra £11.82 per week for life.

Both of these examples assume there is no annual increase in the value of the state pension. If there is an annual increase, the amount you receive could be larger.

Whether or not state pension deferral is the right option will depend on your personal circumstances.

For some it simply won’t be possible as they need the state pension income as soon as possible, while for others it might depend on their health and lifestyle. But if you are in good health then it could be worth considering.

HOW DOES IT WORK IN PRACTICE?

Take someone who reached age 66 in 2023/24 and is entitled to the full flat-rate state pension of £203.85 a week. If they defer taking this income for one year, they will forgo £10,600 in return for an extra £11.82 a week for the rest of their life.

Based on the state pension increasing by 2.5% each year, it could take around 16 years to take as much total income via deferral as they could have done by taking the state pension at age 66.

For someone with a state pension age of 66, this implies the point at which they might be in ‘profit’ from deferring the state pension could be around age 82.

Given average life expectancy for a 66-year-old man is around 85 and a 66-year-old woman is around 87, this suggests that, provided you are in good health, there is a decent chance delaying receiving your state pension could pay off financially.

READ MORE USEFUL ARTICLES ON PENSIONS

Can I choose which pension scheme my employer pays into?

Can I use my tax-free cash lump sum to boost my pension?

As a sole director of a limited company, how much can I make in employer contributions?

What do I need to think about before accessing tax-free cash from my pension?

DO YOU HAVE A QUESTION ON RETIREMENT ISSUES?

Send an email to asktom@sharesmagazine.co.uk with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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