Are you struggling to understand State Pensions? Did you know you can defer your State Pension?

Many people are confused about the possible options for claiming a State Pension. Words like triple lock and deferring seem to add complexity to the issue. To be eligible for a full State Pension you must have contributed to your National Insurance (NI) record for 35 years before reaching the Government’s age for retirement. Click the below link to check your National retirement age.

https://www.gov.uk/state-pension-ageState pension

The following post will try to simplify the answers to the questions regarding State Pension.

How to defer your State Pension?

Two months before you reach your State retirement age you should receive a letter informing you of your pension entitlement. You have to claim your State Pension; and if you don’t respond to this letter, your State Pension will automatically be deferred.

Reaching State Pension age on or after 6th April 2016

Higher weekly payments

  • State Pension increases by equivalent 1% every 9 weeks deferred for at least 9 weeks. (5.8% for the full year).
  • The additional amount is added to your regular State Pension payment.
  • Deferring a single tier State Pension of £164.35 a week would give £8,546.20 per year which you would receive 5.8% or £493 a year on top of your State Pension. (£173.83 per week).

Reaching State Pension age before 6th April 2016

Higher weekly payment

  • State Pension increases by equivalent 1% every 5 weeks deferred for at least 5 weeks. (10.4% for the full year.)
  • The additional amount is added to your regular State Pension payment.
  • Deferring a Basic single persons Pension of £125.95 a week would give £6549.40 per year which you would receive 10.4% or £681 a year on top of your State Pension. (£139.04 per week).

When you decide to claim your deferred State Pension you have two possible options;

Option 1 – Lump-sum payment

If you decide to defer your State Pension for at least one year without a break, a lump-sum payment may be claimed.

You will receive a one-off payment based on the amount of State Pension available had you been claiming it, as well as interest at 2% above the Bank of England ‘base rate’. State Pension will then be paid at the normal rate.

Income tax will be payable on the lump sum at the rate of income tax applied to your other income in the year that you make the claim.

Option 2 – Higher weekly payments

Your weekly State Pension payments will be taxed at the same rate as any other income. (20%, 40%, 45%).

If the single tier State Pension increases your payments will increase.

So…

We suggest you take professional advice before deciding whether you should defer; and if you do, how and when you should decide to make a claim. If you are a higher or additional rate tax payer, you may benefit from deferral to a year where you may pay a lower rate of income tax.

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