You hear a lot about State Pensions and how it’s more convenient for you to defer it instead of collecting it once you become eligible – but what does “deferred pension” mean, and why might it be more convenient?
In the UK, the state does not automatically start sending you payments from the pension money that it sets aside for you—you need to claim it! If you’re wondering, “How do I claim my State Pension?” don’t worry. Once you are nearing the age of eligibility, you’ll receive a notification in the post with instructions on how to claim it.
If deferring State Pension is your goal, you don’t need to do a thing! Your pension will automatically be deferred until you decide to claim it. For some people, it makes more sense financially to delay receiving their State Pension, but bear in mind that any extra payments that you receive from deferring could be taxed depending on the amount of income you receive from other sources!
| What is a deferred pension? | Deferred pension refers to the act of delaying the collection of state pension payments until needed once someone has reached retirement age. |
| What do I need to do to defer my state pension? | To delay when you start receiving your state pension payments, there are no specific actions you need to take – all you need to do is wait to lay claim to your state pension until you are ready to start receiving it. |
| How can I receive my deferred pension payments? | For most people, additional income accrued from deferring pension payments are paid together with normal pension income |
What is deferred pension?
Simply put, deferring State Pension means just putting off collecting your payments until you actually need them. But why does it make more sense financially to defer State Pension? It’s because, for every week you defer your claim, your pension accrues interest, resulting in a higher weekly payment once you do decide to claim it.
Can I defer my State Pension?
Can you defer your State Pension? Yes, you can. You have the option to delay receiving your pension payments for as long as you want, but in doing so, you must delay not only your basic State Pension, but any other State Pension benefits you’ve built up for yourself over the years, too. However, there are some limitations to State Pension deferment.
Deferring pension if you are on benefits
If you are already receiving certain state benefits, you may not be able to accrue interest on your State Pension, and choosing to defer it may also impact the amount of benefits that you receive. If you are on benefits and you want to defer your pension, you will have to advise the Pension Service.
What you need to do to defer State Pension in the UK
To delay when you start receiving your State Pension payments, there are no specific actions you need to take – all you need to do is wait to lay claim to your payments until you are ready to start receiving them. Your State Pension will automatically defer once you become eligible to claim it but do not do so.
Calculate deferred State Pension
The amount of State Pension you receive is based on how much you’ve contributed in terms of National Insurance, but the interest rate that you can accrue on deferring State Pension depends on when you become eligible to claim it – before or after April 6, 2016.
You can use a deferred State Pension calculator to estimate how much your State Pension payment will be. For more information check the information on the “Delay (defer) your State Pension” page on the www.gov.uk website.
Reached State Pension age before 6 April 2016
If you’re asking yourself, “When do I get my State Pension?” you’ll become eligible between 66 and 68 years old, depending on the year you were born. Before April 6, 2016, delaying State Pension will result in a deferred benefit pension increase of 1% for every 5 weeks it isn’t claimed. Over the course of several months, this can certainly add up!
As long as you have waited at least 5 weeks to claim your pension, you have the option to receive the additional State Pension accrued from deferring as either higher regular payments or a lump sum payment. This option is only available to those who have reached eligibility before April 6, 2016. Once you claim your deferred State Pension, you will receive a letter in the post asking how you want to receive this extra pension, and you will have three months from receipt of the letter to make your response. If you opt for weekly payments, the additional amount accrued will be added to your regular pension payment.
Deferring State Pension payments for extra regular income or a lump sum?
If you fall under this first eligibility category (reaching eligibility before April 6, 2016), you can choose whether to increase the amount of money that you receive in regular State Pension back payments each month, or receive a deferred pension lump sum, though this is only an option for those who have deferred their State Pensions for at least a year.
Reaching State Pension age on or after 6 April 2016
For people who have reached the age at which they become eligible for the State Pension on or after April 6, 2016, your pension will increase by 1% every 9 weeks that the pension isn’t claimed. The additional pension accrued will be paid directly into the regular pension payments you will receive.
Can I take my deferred pension at 55?
If you are lucky enough to have figured out how to retire at 55, you will need to rely on your own personal pension pot and other sources of income for a while since you are only eligible to claim your State Pension once you are at least 66 years old. It isn’t possible to claim or defer State Pension before you are eligible. However, asking you future self, “When will I get my State Pension?” means first checking the Gov.uk website as the date of eligibility continues to change.
How to go about deferring State Pension
Once you first become eligible to claim your pension, you will receive a letter from the Department for Work and Pensions (DWP) explaining how to claim it. By not claiming State Pension in the UK, you are in effect deferring it. You don’t need to actually do anything. But if you do decide to defer your State Pension, what is the process?
Once you’re sure, the easiest way you can check out the deferment process, or lack thereof, is by consulting the state’s website. Alternatively, you can call the Pension Service during business hours from Monday to Friday and have a discussion with a representative.
Deferring State Pension if you move abroad
If you have moved abroad to another country in Europe, or a country that the UK has a social security agreement with, the rules for deferring your State Pension are the same. Note that your pension is based on your UK National Insurance contributions, and you need to have made at least ten years’ worth of contributions to be eligible. So, if you’ve moved abroad and haven’t made at least 10 years’ worth of contributions, you won’t be eligible.
Inheriting a deferred State Pension
What happens if I defer my State Pension and die? It’s a question we’ve heard many times, and you’ll be pleased to hear that it’s possible to inherit deferred State Pension from a deceased partner if you meet the following criteria:
- Your partner reached state pension eligibility before April 6, 2016
- You were legally married or in a civil partnership with your partner when they died
- Your partner had deferred or was receiving deferred payments when they died
- You have not remarried or formed a new civil partnership before reaching state pension eligibility
In addition, if your partner died before April 6, 2010, you must also meet at least one of the following criteria:
- You had reached State Pension eligibility when your partner died
- You had not reached eligibility when your partner died, but you are a woman, and your deceased partner was your husband
Do I pay tax on deferred Pension?
You may need to pay taxes on the additional income that you receive after deferring State Pension payments if you exceed your annual Personal Allowance. This is if the amount you receive in income from your private pensions or company pensions, taxable benefits, or any other income such as employment wages, properties or investments is more than £12,570. If you have multiple private or company pensions, you may want to consider a pension transfer to keep everything in one place so it’s easier to keep track of.
Is it worth it to defer State pension?
Are deferred pension benefits worth delaying the claim? Deferring State Pension has its financial advantages. However, it may not be a good option for everyone, such as people who have not planned other sources of income after retirement. It makes more sense for those who also have company pensions or sources of income during retirement since you would essentially be giving up more than £7,000 of income for each year that you defer.
You should also consider your health and lifestyle when deferring your pension. If you are strong and healthy, you will be able to claim much more money in your pension when you are older.
The key to successful retirement planning is to understand your options and set goals for yourself. Moneyfarm’s team of experts and our pension guide are both great tools to help you plan for your retirement so that once you’re there, things go smoothly! It’s a good idea to check out what your workplace pension pot is likely to be when you retire by using the Moneyfarm pension calculator.
FAQ
Why does it make sense financially to defer State Pension in the UK?
For every week you defer your claim, your State Pension accrues interest, resulting in a higher weekly State Pension payment once you do decide to claim it.
How can I calculate my deferred State Pension benefits?
The amount you receive in State Pension benefits is based on how much you’ve contributed to National Insurance. The interest rate you accrue on deferred pension benefits depends on when you become eligible to claim them, and it equates to 1% every 5/9 weeks deferred.
For how many years can you defer your State Pension?
In theory, you can defer receiving your State Pension for as long as you like. If you die and never received deferred payments while you were alive, they can be inherited. You’ll find more information regarding inheriting deferred pension payments on the nidirectgovernmentservices.uk website.
When can I claim my State Pension?
It depends on when you were born. Currently you can begin receiving State Pension benefits once you turn 66 years old.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
