With the full new state pension providing just over £9,000 a year, it is natural for people to look at ways they could get more income in retirement. State pension deferral is one possible method of doing this.
People who receive the following benefits are not allowed to accumulate additional state pension:
- Income Support
- Pension Credit
- Employment and Support Allowance (income-related)
- Jobseeker’s Allowance (income-based)
- Universal Credit
- Carer’s Allowance
- Incapacity Benefit
- Severe Disablement Allowance
- Widow’s Pension
- Widowed Parent’s Allowance
- Unemployability Supplement
Someone will also be ineligible if their partner gets Income Support, Pension Credit, Universal Credit, Employment and Support Allowance (income-related) or Jobseeker’s Allowance (income-based).
How much can people get?
Essentially, the longer someone defers their state pension, the more they could potentially benefit.
People who reached state pension age before April 6, 2016 could get an additional £14.31 per week by deferring for one year.
Those who reached state pension age on or after April 6, 2016, and are therefore on the full new state pension, can get an extra £10.42 a week after one year of deferral.
To give an idea of the potential sums available for deferring, Which? calculated that someone who retired or retires after April 6, 2016 could receive a total of £5,863 in extra state pension if they defer for three years and then collect their pension for 20 years.
However, there comes an inherent risk with state pension deferral, as anyone deciding to do it will need to collect their pension for a number of years to make it worthwhile.
Although people receive additional state pension by deferring, they have missed out on claiming their money earlier, so it will take a while to catch up and reap the eventual rewards.
Using the example above, someone reaching state pension age at 66 would then need to defer until they are 69 and collect their pension until they are 89 to receive the full financial benefits.
It is not easy to predict how long someone will live for, so deferring the state pension may not be right for everyone, as there is no guarantee they will end up benefiting from it.