A recent survey conducted by Just Group, which is a specialist in the later life, on 1,050 retired and semi-retired individuals has revealed that there is a significant lack of knowledge concerning state pension deferral.
The research showed that one quarter (25%) of those aged 55-64 have no idea about this option. However, this will increase to 67 between 2026 and 2028.
Benefits of Deferring the State Pension
Those individuals who qualify for the New State Pension (post-April 2016) can gain from deferment. That means every nine weeks’ deferment produces an additional one percent weekly rate, approximately increasing the weekly state pension by 5.8% each year deferred.
This comes after annual Triple Lock uprating which raised the full New State Pension to £221.20 per week for financial year 2024/25.
Accordingly, those who decide to put off getting their State Pension may acquire a further £12.78 per week, thereby accumulating an extra £664.58 over twelve months.
Just Group says that people who were pensionable before April 6, 2016 and chose to hold off on claiming their Basic State Pension are rewarded still more generously.
They will be entitled to raising it by one percent for every five weeks they have deferred, in other words an increase of 10.4% per annum or £916.66. This sum can either be received as an additional income or a lump sum.
Gender and Age Disparities in Awareness
Furthermore, the investigation observed that women (26%) are more likely than men (19%) to have no idea about deferring. In addition, among those aged 75 and over, 26 per cent did not know about this choice.
Responding to these findings, Stephen Lowe, Just Group’s group communications director, said: "Deferring can be a good option for people who don’t need the income immediately - perhaps because they are still working or have other sources of cash - so it is disappointing a quarter of those approaching State Pension age don’t know about the option."
He added: "While deferring might not be the right option for everyone, it should still be something everyone knows about given that the State Pension is widely considered a ‘bread and butter’ source of income in retirement, with 3.4 million retired households relying on it for more than half of their yearly income."
Lowe has noted that the changes in terms affecting people reaching state pension age on or after April 6, 2016 have reduced the attractiveness of deferring in recent years. As against previous arrangements, this time there is no option of taking a deferred income as cash upfront.
However, even for such persons, deferring may still make sense in specific circumstances since it will bring forth increased future benefits that keep pace with inflation.
State Pension Rates for 2024/25
- New State Pension (full rate): £221.20 per week / £884.80 every four weeks
- Basic State Pension (full rate for Category A or B): £169.50 per week / £678.00 every four weeks
- Basic State Pension (lower rate for Category B - spouse or civil partner's insurance): £101.55
- Basic State Pension (non-contributory for Category C or D): £101.55
Tax Implications
For the 2024/25 fiscal period, the threshold for the Personal Tax Allowance has remained at £12,570. This means that an older person earning more than £242 per week may be required to pay taxes on their income.
The full New State Pension would amount to £11,502 annually, thus leaving only £1,068 before it exceeds the personal tax threshold. Therefore, whoever has an extra weekly income above £89 could have a tax liability the next year.
Similarly, those who get paid Old or Basic State Pension at full rate will receive £8,814 annually which is just about £3,756 less than the taxable limit and equivalent additional monthly earnings of up to £313.
In such instances, HM Revenue and Customs (HMRC) may employ a system called “simple assessment”. Under this arrangement, HMRC are notified by Department for Work and Pensions (DWP) of how much state pension was received at the end of every tax year.
If this exceeds your income tax allowances, then you will receive a tax bill. Since 2021/22 financial year until now, the income tax threshold has been stationary at 12,570 pounds.