In our weekly series, readers can email in with any question about retirement and pension saving to be answered by our expert, Tom Selby, director of public policy at investment platform AJ Bell. There is nothing he doesn’t know about pensions. If you have a question for him, email us at money@inews.co.uk.
Question: I’ve delayed taking my state pension by a year already – is it worth me doing it again? I receive a £20,000 a year annuity income already, which is enough for me to live on as I own my home outright.
Answer: 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 ‘new’ state pension, in place since April 2016, is worth £221.20 per week (around £11,500 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 per cent. Next year, the full state pension will rise to around £12,000 per year.
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.
Deferring your state pension
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 per cent for every five weeks you defer, subject to a minimum deferral period of five weeks. This works out at a 10.4 per cent increase in your state pension if you defer for 52 weeks.
Based on the 2024/25 full basic state pension of £169.50 per week, this works out at an extra £17.62 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 per cent for every 52 weeks. You have to defer for at least nine weeks in order to benefit from this boost and there is no upper limit on how many years you can defer.
Based on someone receiving the full new state pension for 2024/25 of £221.20 a week, a person who deferred for 52 weeks would get an extra £12.82 per week for life.
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 and have enough money to live on, then it could be worth considering.
How does deferral work?
Take someone who reached age 66 in 2024/25 and was entitled to the full new state pension of £221.20 a week. As mentioned above, if they deferred taking this income for one year, they would have forgone around £12,000 in return for an extra £12.82 a week for the rest of their life. If they deferred it again in 2025/26, they would forgo roughly double the annual income and receive roughly double the boost for the rest of their lives.
Based on the state pension increasing by 2.5 per cent 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 by a year 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 and have enough money to live on in retirement, there is a decent chance delaying receiving your state pension could pay off financially.
The obvious danger in deferring – particularly for a long period – is that you might not live long enough for the decision to pay off financially.
You should also consider the income tax implications of your decision, particularly if deferring your state pension will result in you being pushed into a higher income tax bracket. Based on the information you have provided, this is unlikely to be the case for you.
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