State Pension Deferral: How Much Extra Will You Get?

What Is State Pension Deferral?

State Pension deferral means choosing not to claim your State Pension when you reach State Pension age. Instead, you delay claiming and, in return, your State Pension increases for every week you defer. This is a permanent increase – you receive the higher amount for the rest of your life.

Deferral happens automatically if you simply do not claim your State Pension. You do not need to notify the government or fill in any forms. When you are ready to claim, you contact the Pension Service and your pension will include the additional amount earned through deferral.

How Much Extra Will You Get?

Under the new State Pension rules (which apply if you reached State Pension age on or after 6 April 2016), your pension increases by 1% for every 9 weeks you defer. This works out to approximately 5.8% per year.

Here is what the numbers look like in practice for someone entitled to the full new State Pension:

The Break-Even Point

The critical question with deferral is: how long do you need to live after claiming to recoup the pension payments you missed while deferring? This is known as the break-even point.

For a one-year deferral at the current rate of 5.8%:

• You give up £11,973 in State Pension payments during the year of deferral (52 weeks at £230.25)
• You gain an extra £694 per year for the rest of your life
• Break-even point: approximately 17.2 years (£11,973 ÷ £694)

If you defer from age 67 for one year and start claiming at 68, you would break even at approximately age 85. Given that the average life expectancy for a 67-year-old man is about 85 and for a woman about 87, deferral is a marginal decision for many people.

When Deferral Makes Sense

Deferring your State Pension is most likely to benefit you if:

• You are still working and do not need the State Pension income immediately. The extra income could push you into a higher tax band, so deferring until you stop working can be tax-efficient
• You are in good health and have a family history of longevity, increasing the likelihood you will live well past the break-even point
• You have other income sources such as a workplace pension, investments, or savings that can support you during the deferral period
• You want a guaranteed inflation-linked income increase. The deferred amount is protected by the triple lock, so it increases each year in line with the rest of your State Pension

When Deferral Does NOT Make Sense

You should probably not defer if:

• You need the money now: If you are struggling financially, taking your State Pension immediately is almost always the right choice
• You claim means-tested benefits: If you receive Pension Credit, Housing Benefit, or Council Tax Reduction, the DWP may treat your deferred pension as if you were receiving it, reducing your benefits accordingly
• You are in poor health: If you have a serious health condition that may reduce your life expectancy, you are unlikely to reach the break-even point
• You could invest the money for a higher return: If you can earn more than 5.8% per year by investing your State Pension (after tax), taking it and investing may produce a better outcome

Tax Implications of Deferral

The State Pension is taxable income. When you eventually claim your deferred pension, the entire amount (including the deferral increase) is subject to income tax. This is an important consideration if you are still working when you defer:

• If claiming your State Pension while working would push your income into the higher-rate (40%) tax band, deferring until you stop working could save you significant tax
• Conversely, if your total income in retirement will be below the personal allowance (£12,570), you will not pay any tax on the State Pension regardless of deferral
• The deferred increase itself is taxed at your marginal rate, so a higher-rate taxpayer keeps less of the increase than a basic-rate taxpayer

For more on how State Pension interacts with tax, see our guide on tax on State Pension.

Old State Pension Deferral Rules

If you reached State Pension age before 6 April 2016, different (and more generous) deferral rules apply:

• The increase rate was 1% for every 5 weeks deferred (approximately 10.4% per year)
• You had the option to take deferred pension as a taxable lump sum instead of a weekly increase
• The lump sum attracted interest at 2% above the Bank of England base rate

Under the old rules, deferral was significantly more attractive. The break-even point was approximately 10 years compared to 17 years under the new rules.

How to Defer Your State Pension

Deferral is simple: you just do not claim. About four months before you reach State Pension age, DWP will send you a letter inviting you to claim. If you want to defer, simply do nothing. Your pension will automatically be deferred.

When you are ready to claim:

1. Call the Pension Service on 0800 731 7898
2. Or claim online through GOV.UK
3. Your first payment will include the increased amount from deferral

Can You Backdate a Deferred Pension?

If you have been deferring and decide you want to claim, you can backdate your claim by up to 12 months. However, any backdated period will be paid at the normal rate – it will not include the deferral increase for those months. In other words, you receive the missed payments as a lump sum, but you lose the deferral uplift for that period.

Deferral and Inheritance

Under the new State Pension, if you die while deferring, your estate or surviving spouse may be entitled to a lump sum equal to the deferred payments you would have received. The rules for inherited deferral are complex and depend on your marital status and when you reached State Pension age. See our guide on State Pension after your spouse dies for more detail.