Pensioners can boost their retirement income by £694 with a little-known rule (Image: Getty)
State pensioners can add up to £694 extra per year to their pension thanks to a little-known tip, but it means delaying your retirement by another year.
You can claim your State Pension once you reach State Pension age, which is currently 66 for both men and women. The Pension Service will send an invitation letter to you around four months before your 66th birthday, at which point you can choose to either claim your pension, or defer it.
You must tell the Pension Service if you want to claim your pension and if you choose this option, you’ll start to get your payments after you turn 66. If you’re a man born on or after April 6, 1951, or a woman born on or after 6 April 1953, then you can claim the new State Pension. Anyone born before these dates will receive the basic State Pension instead.
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You won’t receive your State Pension automatically once you reach State Pension age, as you have to submit a claim for it, but there is an option to defer it, which can prove lucrative in the long run, giving you up to £694 extra per year.
If you opt to defer your pension then you don’t have to do anything, as it will automatically be delayed until you decide to claim it. And while choosing to delay your retirement might not sound like the most appealing option, if you defer it you’ll get paid a higher amount when you do decide to claim it, up to 5.8% per year more.
If you reach State Pension age on or after April 6, 2016 – so those born after 1949 – then your pension pot will increase every week you defer – providing you defer for at least nine weeks.
The DWP explains: « Your State Pension will increase every week you delay (defer) claiming it, as long as you defer for at least 9 weeks. For every year you delay claiming, your weekly payments increase by just under 5.8%.
« You cannot build up this extra State Pension if you get certain benefits. Deferring can also affect how much you can get in benefits. »
The DWP says you can get the State Pension you’ve deferred as either a one-off arrears payment of up to 52 weeks (12 months), increased regular payments (known as ‘extra State Pension’), or both a one-off arrears payment and increased regular payments.
If you opt for the one-off arrears payment by deferring for 52 weeks, you’ll get a lump sum of £11,973, but you won’t get any interest added to this.
But if you opt to get your deferred pension as an extra payment, for every nine weeks you defer, you’ll get 1% added to your regular weekly pension payment for life, which works out as just under 5.8% for every 52 weeks you defer.
The new State Pension is currently worth £230.25 per week, so by opting to defer for 52 weeks, you can get an extra £13.35 per week on top of your regular pension payment, which amounts to £694.20 extra in pension payments over the course of a year, if you get the full amount.
But deferring your pension isn’t without its risks as it will take more than 15 years to get back 52 weeks of deferred full new State Pension, according to the DWP, and this time increases by around one year for each additional 52 weeks you defer claiming.
It means losing your pension income in the year you deferred it, but you would get an extra £694 paid every year until you die. So over time, what you lose in the first year of deferral could eventually be gained back long-term if you live long enough. And if you’re still working, deferral can be a good option as it means you don’t lose any of your state pension during work to tax, which means you don’t have to wait as long to make the money back.
Money Saving Expert founder Martin Lewis explains: « Defer your state pension, and the maths works out that if you live longer than typical life expectancy, you’ll gain; if you live less, you’ll lose. Live a typical lifespan and it’ll be pretty neutral.
« So if you’re in poor health, it’s not really worth considering. If you’re in great health with a history of family longevity, deferring could be a winner.
« Otherwise the real issue is tax – if you’re earning or have a decent income now, but’ll pay tax at a lower rate later on, then deferring can be very worthwhile. »
