Deferring the state pension is the default option. If you do not claim it the Government will not pay it to you.
For a lot of people, this might be a better option for them. Of course, you need to think about how long you defer for too.
Factors to consider
As with all pension issues, there is a lot to consider.
The first is deferring means the State will increase your pension by about 5.8% per year for each year of deferral. If you ignore tax, the numbers indicate it could be better not to take state pension immediately if you expect to live for 17 years. Average life expectancy for a 66-year-old man is 21 years; for a woman, it’s 23 years.
You can no longer take deferred pension payments as a lump sum. This was an option for people who reached state pension age before April 2016. Another thing to note is that the increased pension is not subject to the “triple lock” and will escalate only by inflation.
The state pension is taxable although HMRC does not deduct tax when they pay it to you. If you are still working when you retire, deferring might be more attractive. This is because you will probably pay more tax on the state pension while you are working.
Things to think about
You also need to consider when your need for income is likely to be greater. Will it be in your 60s, or in your 80s? On paper, it might look attractive but you may simply decide that you want the money now.
If you have retirement income from other places, such as a company pension, deferring your state pension might be a good deal. You could treat it like a really good savings account. Deferring may also appeal if you now live in a country where your state pension is not subject to the UK’s annual increases.
If your spouse or civil partner has deferred their State Pension but dies before claiming it, you could inherit some of it. Depending on the decision they made, this could be paid as extra State Pension or a lump sum when you claim your own State Pension.
What is right for one person is not necessarily right for another.
As is always the case what is right for one person is not automatically right for someone else. The best way to take such a decision would be within the scope of a comprehensive financial plan.
