You can boost your weekly state pension by delaying when you start to draw it. For some people this will represent a very good deal – but it all depends on how long you live for once you start receiving it.
We each have a date from which we can claim our state pension. Once we do, we can receive a weekly sum based on our national insurance contributions and the level of the state pension at the time.
However, your state pension increases by the equivalent of 1% for every nine weeks you delay – or defer – claiming it. That works out at just under 5.8% for every 52 weeks.
Let’s say you are entitled to £221.20 a week (£11,502 a year), which is the current full rate for the new state pension.
By deferring for 52 weeks, you will get an extra £12.82 a week, which adds up to an extra £666 a year for the rest of your life.
That’s based on the current figures and assumes no annual increase in the state pension.
In that example, you have given up £11,502 of income. That is a lot of cash and if the figures stayed the same it would take 17 years before you were better off deferring.
However, any future increases in the state pension will reduce the payback period. The consumer body Which? says it falls to 15 years if the state pension increases by 2.5% each year. Higher annual increases, like those we have seen in recent years, would reduce that further.
In reality, we don’t know by how much the state pension will increase by in future, which makes the maths more tricky.
The “reward” for deferring is the same for both sexes, but women will on average live for longer, so a deferral is likely to be slightly more attractive on average to them than to men, says Steve Webb, the former pensions minister who is now a partner at the actuarial firm LCP.
He adds: “Whether or not deferral makes sense depends on your individual circumstances. Those who are in good health and can expect a long retirement may end up in profit if they put off taking their state pension and then draw an enhanced pension at a later date.
“And anyone planning to work past pension age might want to put off taking their state pension, as otherwise their pension will be added to their wages and taxed in full.”
On the other hand, those in poor health – who may not live long enough to recoup the pension they gave up – and those on benefits – for whom a higher state pension might mean a reduction in how much they can claim – may find they do better to draw their state pension as soon as it is available.
Bear in mind that the state pension age is going up, so you may be keen to claim straight away. The UK state pension age of 66 is to rise to 67 between May 2026 and March 2028, and to 68 between 2044 and 2046.
To defer drawing your state pension, you don’t have to do anything. That is because you do not get it automatically – you have to claim it. You should get a letter no later than two months before you reach state pension age telling you how to claim.
The system is said to be “broadly neutral” in terms of the cost to the government: overall, it pays out pretty much the same whether people take their pensions on time or defer.