As you approach your retirement, you may start thinking about how funds from the State Pension could support your lifestyle.
The maximum annual amount for the State Pension in the 2025/26 tax year is £230.25 a week, adding up to £11,973. While this is not a huge sum, and you would struggle to live comfortably on it, it is guaranteed for life and will go up each year by at least the rate of inflation.
It provides you with a valuable income underpin, and you do need to factor it into your retirement income planning.
You can find some key information about your State Pension on the government website, including:
- When you will be eligible to receive it, which may not be the date you had assumed, as the State Pension Age is subject to change in 2028
- How much you will receive, which depends on your National Insurance contributions (NICs) throughout your working life.
It is important to bear in mind that you will need to request it, as it will not be paid automatically. You should receive notification from HMRC around two months before your State Pension Age that will inform you of your options.
One of the options you have is to defer your State Pension.
As with many financial decisions, this is not a straightforward one. So, find out about some of the pros and cons of deferring yours.
3 pros of deferring your State Pension
1. Your income will increase if you defer
Your weekly payments increase by 1% for every nine weeks you defer. This means that if you defer your State Pension for an entire year, it will increase by just under 5.8%.
A deferral of this kind may be something you might want to consider if you are planning to stay in employment after the date you would receive your State Pension. If you do not need the income it would provide you with, you could defer and then claim increased payments later.
Be aware that when you do decide to claim it, you will need to notify HMRC at least two months before you can start to receive it.
2. You could end up receiving more income over your lifetime
As well as receiving a higher amount than you would have done had you not deferred, the increased payments could also cover the income you missed out on by deferring.
Based on the current State Pension, if you defer for one year, the Times confirms that if you live more than 17 years after taking your State Pension, you would receive more overall through opting to delay, rather than taking it as soon as you become eligible.
3. Deferring could help you mitigate the amount of Income Tax you have to pay
Perhaps the most persuasive argument for deferring your State Pension relates to the amount of Income Tax you pay.
Your State Pension is treated as income and is taxed at your marginal rate. For example, this means that if you are a higher-rate taxpayer, if you continue working, your State Pension will be added to your existing income and so taxed at 40%.
If you expect to be a basic-rate taxpayer after you stop working, deferring could potentially reduce the amount of Income Tax you pay in your lifetime, as your State Pension will only be taxed at 20%.
This highlights the importance of including your State Pension in your overall retirement income planning strategy and understanding how deferring may affect your total tax liability.
3 cons of deferring your State Pension
1. You will miss out on guaranteed income
Clearly, the most obvious argument against deferring your State Pension is that you will be forgoing regular income that you are entitled to for the period you defer.
Even if you do not think you actually “need” it yet, you may think it is best to take it as it could be put to a variety of uses, such as:
- Improving your overall lifestyle
- Setting it aside for a specific purpose, such as a big holiday
- Supplementing your savings fund.
Furthermore, as you have already read, the amount you will receive is based on your NICs history, so you may think it is only right to draw your State Pension as soon as you are entitled to it.
2. It could take some time before deferring becomes financially advantageous
As you read under “pros”, a big reason for not deferring your State Pension is not knowing whether you will benefit from doing so in the long term.
As you have read, it can potentially take 17 years (or more) to make up for the missed payments through increased weekly amounts.
This is not an easy decision given that timescale, and it is something you will need to think carefully about.
3. It is hard to assess your life expectancy
Related to the previous point, the decision of whether to defer could come down to how long you think you will live, and whether your expected longevity will make it worthwhile. In short, you may not live long enough to recoup the missed payments.
Naturally, it is impossible to state with confidence how long you will live. However, there are some considerations you could take into account to help you make your decision.
For example, the Office for National Statistics life expectancy calculator will give you the average age at which someone your age now is expected to pass on.
Additionally, if you have health concerns or a shorter-than-average life expectancy, deferring may not be beneficial.
You can pause your State Pension if you have already started receiving it
One point to take into account when you are deciding to defer or not is that even if you are already receiving your State Pension, you can opt to stop receiving it for a time.
This may be beneficial to you in certain circumstances, such as if you are returning to work as a higher-rate taxpayer.
However, you can only do this once.
Get in touch
As you can probably appreciate, the decision to defer your State Pension is not an easy one. If you would like to talk to a professional about your options, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The State Pension is not accessible until State Pension Age of 66 (rising to 67 between 2026 and 2028).
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, Lasting Powers of Attorney, or will writing.