Should I defer my state pension?

Can I delay my state pension?

Although you can't start taking your state pension before state pension age, you can delay when you start receiving it.

Doing so could result in you receiving a higher weekly state pension.

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, but can only do that once.

This guide explains how it works and whether or not you'll actually be any better off.

Deferring your state pension: taking extra pension

If you want to try to boost your state pension by delaying when you receive it, you'll have to put off claiming it for at least five weeks.

The amount you get in return varies depending on when you qualified for the state pension.

If you reached state pension age after 6 April 2016

For people qualifying for the state pension after April 2016, the rate of annual increase is 5.8%.

This partly reflects that the new state pension is higher than the basic state pension.

The new state pension is £221.20 in 2024-25 or £11,502 a year.

Deferring for a year will see you increase your annual state pension to £234.05 a week, or £12,169.10 a year.

If you reached state pension age before 6 April 2016

People who qualified for the 'old' state pension can still defer payment, but the number of claimants now doing so is likely to be low.

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 basic state pension is £169.50 a week in 2024-5 or £8,814 a year.

Deferring for a year will see you increase your annual state pension to £187.10 a week, or £9,730.65 a year.

Deferring your state pension: taking a lump sum

You can delay taking your state pension and receive it as an enhanced lump sum, but you'll have to defer for at least a year in order to get the lump sum payment.

Note, that this (enhanced) option is not available for anyone who qualifies for the state pension on or after 6 April 2016. 

It's worked out as if you had put the deferred pension into a savings account where it earned 2% above the Bank of England base rate (currently 5.25%), using a compound interest calculation.

However, the DWP adds interest weekly not yearly, and this works out 0.14% per week at present.

You can still get a lump sum if you qualified after April 2016, but without a percentage uplift.

Do I pay tax on deferred state pension?

If you decide to take an extra pension, you'll simply pay income tax on the total amount of income you have from all of your pensions.

If you decide to take the deferred pension as a lump sum, it is taxable at your current rate - you won't be pushed into a higher tax rate because you received a lump sum.

For example, if you're a basic-rate (20%) taxpayer at the time you come to withdraw the state pension lump sum, you'll be taxed as a basic-rate taxpayer, even if the lump sum you get pushes you into a higher tax bracket.

The Department for Work and Pensions will send you a declaration form when you come to claim your lump sum, where you'll have to say what rate of tax you currently pay.

HMRC will check this at the end of the tax year, and if too much tax has been deducted you'll get a refund. But if you haven't paid enough tax, you'll have to make up the difference.

Find out more in our guide to tax in retirement.

Is it worth deferring your state pension?

If you have retirement income from other places, such as a company pension, deferring your state pension might be a good deal - but it comes down to how long you live for once you start claiming it.

You're giving up over £10,000 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 at today's state pension rates or 15 years with the state pension increasing by 2.5% each year.

Take your health into consideration - if you're fit and healthy, you could end up with much more money as you get older.

Find out more: How much will you need to retire? - this guide will help you plan a budget

How much could I get by deferring my state pension?

Our table looks at the net loss or gain that will determine whether deferring would be profitable within different time frames.

If you decided to delay taking the state pension, you'd still be in substantial deficit five years after you started receiving it under both systems.

After 10 years you still wouldn't have made up what you'd lost under the new system, but under the old system, your deferral would have started to pay off.

For example, under the old state pension rules, delaying for three years would put you over £4,000 in profit after 10 years, but you'd still be facing a £13,000 deficit as a new state pensioner.

These figures are illustrative and based on 2024/25 rates. The figures in brackets show your overall position after 5, 10 and 15 years.

They do not take into account that what you'd give up and the extra you'd collect would increase in line with state pension rises each year.

If you retired before 6 April 2016

If you retired on or after 6 April 2016

Will deferring my state pension affect any benefits?

Claiming extra state pension will affect any benefits you receive, such as pension credit, house benefit and council-tax reduction.

This is because the extra amount you get counts as income. However, if you decide to take a lump sum, these benefits won't be affected.

If you're deferring your state pension, you won't build up any lump sum or extra pension for the days you're receiving any of the following benefits:

• income support
• pension credit
• employment and support allowance
• jobseeker's allowance
• carer's allowance
• incapacity benefit
• severe disablement allowance
• widow's benefit
• any type of state pension.

State pension deferment summarised

For those who reached state pension age before 6 April 2016, the extra pension offered at 10.4% a year is very generous. It's unlikely that many more people covered under the old system will now choose to defer.

For those who reached state pension age after 6 April 2016, deferring your state pension is no longer an amazing deal.

The long wait to recoup what you've given up - 17 years (or nearer 15 years if compound state pension growth, say 2.5% per year, on the deferred and undeferred starting amounts is taken into consideration) - means there's a risk you could not live to earn back the extra pension you deferred for.

If you do live for more than 15 years after taking your state pension - say reaching age 82 having taken your state pension at 67 - having deferred it for one year, you would receive more overall than if you had taken the income straight away. 

Life expectancy at 65 is 19 years for males (84) and 21 years for females (86) according to data from the Office for National Statistics 2021 census. So it’s worth it if you have an average or longer lifespan, but only just. 

How do you defer the state pension?

You don’t automatically receive the state pension when you reach state pension age. 

If you do nothing, your state pension is automatically treated as deferred. You have to make an official claim.

Around two months before you reach state pension age, you should receive a letter setting out your options and explaining what to do. The letter will include an ‘invitation code’ that you’ll need to use in the application.

To start getting the money, you can apply online using the invitation code, your marriage details and your bank or building society information. You can also phone (0800 731 7898) or write to the Pension Service to initiate your claim.