How delaying your state pension by five years could add £3,333.20 to each year of retirement

DELAYING your state pension could add thousands to the amount you have to live on each year when you retire.

Currently, the full new state pension is worth £221.20 each week, which adds up to £11,502.40 per annum.

But if you’re still working, or don’t need the money just yet, choosing to wait before claiming it can mean a significant boost to your income.

You need to delay for at least nine weeks to see any benefit, but then for each nine-week period you get a 1% increase on the amount you’ll receive.

That means for every year you delay; you boost your payout by just under 5.8%.

Royal London’s pensions expert Clare Moffat said: “If you don’t want your State Pension once you reach State Pension age, then you don’t have to take it. Instead, you can delay – or put off – claiming it, which would mean it could increase.

“There are various reasons why you might want to delay, such as you might still be working. Say you work part-time and earn £12,000, as that’s under the Personal Allowance, you won’t currently pay any income tax on those earnings. 

“But if you take your State Pension, it will then use up around £11,500 of your personal allowance which means only £1,000 of your earnings will be tax free and the other £11,000 of your part-time earnings will be taxed.”

How much will I get?

A year’s delay will add £12.82 a week to the full state pension, according to gov.uk, which means £666.64 a year added to your state pension. Meanwhile, delaying for five years will add a whopping £3,333.20 to the annual sum you receive.

If you do not have 35 years’ worth of national insurance credits, you won’t get the full state pension. 

Any nine-week periods that you delay will still increase the value of your pension by 1%, but this will be calculated based on the lower amount they you’re eligible for. You can check your national insurance record, and even pay for missing years on gov.uk.

Of course, these figures are based on the current state pension amounts, but as this increases each year thanks to the triple-lock, the actual amounts you add are likely to be higher.

Then, once you claim your State Pension, the extra amount you get because you deferred will usually increase each year based on the Consumer Price Index. 

However, since you’ll be giving up the state pension for several years, you’ll need to live for a certain period of time once you do start claiming in order to actually end up better off overall.

Moffat explains: “If you don’t need your State Pension right now, it possibly makes sense to delay taking it until you do need it. But, you need to assess whether it is right for you. Because you are giving up the right to receive State Pension, it can take years to see the benefit of delaying. The less tax you pay, the less worthwhile delaying might be.”

Figures from Royal London show that a basic rate taxpayer who delays receiving the State Pension for one year would need to live until 82 to see the benefit. But someone with taxable earnings over £50,270 would only need to live until 79. 

Delaying for five years, would mean a basic rate taxpayer would need to live to 86 to benefit but a higher rate taxpayer would only need to live to 83.

How to delay your state pension

You don’t actually need to do anything to delay your state pension, you simply don’t claim it. The money will then be deferred until you apply to receive it.

When you want the money, you can make a claim on gov.uk. and the extra money will be added to your weekly payment.

Moffat said: “Delaying, also known as deferring, your State Pension is when you choose not to take this benefit at your State Pension age, which is currently age 66. One thing many people aren’t aware of is that you need to claim State Pension in the first place.  

“The Department for Work and Pensions should get in touch with you no later than two months before you reach State Pension age and will explain how to claim it. If you don’t respond to the letter, then you won’t get paid your State Pension. “

Who is eligible to delay their state pension?

Most people can defer their state pension to get a bigger payout, but there are some exceptions.

Time spent in prison or when you or your partner get certain benefits does not count towards the nine-week deferrals.

You cannot build up extra State Pension during any period you get:

• Income Support
• Pension Credit
• Employment and Support Allowance (income-related)
• Jobseeker’s Allowance (income-based)
• Universal Credit
• Carer’s Allowance
• Carer Support Payment
• Incapacity Benefit
• Severe Disablement Allowance
• Widow’s Pension
• Widowed Parent’s Allowance
• Unemployability Supplement

You cannot build up extra State Pension during any period your partner gets:

• Income Support
• Pension Credit
• Universal Credit
• Employment and Support Allowance (income-related)
• Jobseeker’s Allowance (income-related)

If you reached state pension age before April 6, 2016

The rules are slightly different if you reached your state pension age before April 6, 2016.

Instead of getting a 1% increase for every nine weeks you delay, you get 1% for every five weeks that you don’t claim.

You can also choose to take the money in higher weekly payments, or as a one-off lump sum.

When you claim your deferred State Pension, you’ll get a letter asking how you want to take your extra pension. You’ll have three months from receiving that letter to decide what you want to do.