Deferring State pension - what it is worth

IFAonline | 12 Feb 2004 | 00:00
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  • By Julie Henderson
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People could receive a lump sum worth up to £30,000 if they defer taking of State pension benefits for at least five years, says the DWP, or around 7.5% extra for every year they delay claiming.

Details of the “Taking up the State Pension later” factsheet reveal the DWP is keen to encourage pensioners to defer as just 15,000 people do so every year for an average length of two years.

This increment is designed to increase to 10.4% from 2010 for every year benefits are deferred, but the government has instead proposed to start this increased rate from 2005, to give pensioners a larger weekly pension.

At present, pensioners can only defer receiving their State pension entitlements for a maximum of five years, so the government is removing the limit for anyone who chooses to continue or go back to work.

Anyone who defers for at least one year will receive all the State pension due, plus extra interest before receiving the normal State pension entitlement.

Table shows examples of different State Pension levels/gains on deferral or lump sum

Type of Pension Underlying amount at point of claim Years of Deferral Lump Sum Accrued Increment to State Pension
Weekly AnnualWeekly Annual
Category B Pension from Spouse's contributions £46.35 £2,410.2 1 £2,483 £4.82 £251
    2 £5,115 £9.64 £501
    5 £13,998 £24.10 £1,253
Category A Pension from own contributions £77.45 £4,027.4 1 £4,149 £8.05 £419
    2 £8,548 £16.11 £838
    5 £23,390 £40.27 £2,094
Category A With additional State pension £77.45 £4,027.4 1 £4,149 £8.05 £419
    2 £11,036 £20.80 £1,082
    5 £30,201 £52.00 £2,704
Figures are in 2003/4 price terms and shown gross of tax. Lump sum based on illustrative rate of 6% pa

Consumers are likely to require advice when choosing whether to defer claiming their State entitlement as the DWP points out people will need to consider their individual circumstances before making such a decision.

IFAonline

Categories: Investment

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