Thousands of state pensioners across the UK have an opportunity to significantly increase their annual income through a little-known strategy from the Department for Work and Pensions (DWP). By choosing to delay claiming their state pension, individuals can secure a permanent boost to their weekly payments, potentially adding hundreds of pounds to their yearly budget.
How Deferring Your Pension Increases Your Income
The mechanism for boosting your pension is straightforward. For every nine weeks you postpone making your claim, your eventual state pension increases by 1%. If you defer for a full year, this results in a substantial 5.8% uplift on your weekly payments for the rest of your life.
With the current new state pension valued at £230.25 per week (£11,973 per year), a one-year deferral currently adds approximately £13.35 to your weekly income. Over a full year, this equates to an extra £694. However, this figure is set to rise.
The Impact of the Triple Lock and Future Projections
The state pension is forecast to increase by 4.8% next year under the Triple Lock policy. This will push the weekly amount to an estimated £241.30. When this new, higher rate is applied to the 5.8% deferral bonus, the annual extra income for pensioners who deferred for one year jumps to a notable £714.
This means that the financial benefit of waiting is effectively inflation-proofed, as the bonus is calculated as a percentage of the prevailing state pension rate, which itself rises over time.
Is Deferring the Right Choice For You?
Financial expert Martin Lewis has provided clear guidance on who should consider this option. He explains that the decision is a gamble on your own longevity. "If you live longer than typical life expectancy, you'll gain; if you live less, you'll lose. Live a typical lifespan and it'll be pretty neutral," he stated.
Lewis, 52, further clarified that to simply break even on the money foregone during the deferral period, you would generally need to live for around 20 years after starting to take your pension. This is approximately the life expectancy of an average 66-year-old.
He offered two key pieces of advice for those considering deferral:
- If you are in poor health, it is not really worth considering.
- If you are in great health with a history of family longevity, deferring could be a winner.
Lewis also highlighted a crucial tax consideration: "If you're earning or have a decent income now, but'll pay tax at a lower rate later on, then deferring can be very worthwhile." This makes deferral a potentially savvy financial planning tool for those who are still working or have other sources of income at the point they become eligible for the state pension.
Ultimately, the choice to defer is a personal one, dependent on individual health, financial circumstances, and family history. For those who can afford to wait, the reward is a permanently enhanced state pension that keeps pace with inflation.
