Should you defer your state pension?

For many of us, the idea of a state pension feels reassuringly simple. You reach state pension age, and the payments start. But there’s another option - you can choose to delay taking it. By deferring, you’ll eventually receive a higher amount each week, which can make financial sense in certain situations. But for others, the numbers just don’t add up.

Here’s what you need to know before deciding whether to take it now or wait.

What happens when you defer

You qualify for the state pension at 66 (rising to 67 by 2028). If you do nothing when you reach that age, your payments will be automatically deferred until you decide to claim them. During that time, your future payments grow.

If you reached state pension age after April 2016, your pension increases by 1% for every nine weeks you defer - that’s roughly 5.8% for each full year. Those under the old system (the basic State Pension before 2016) get a higher 10.4% a year and could choose a lump sum instead of higher weekly payments, but that option isn’t available for new retirees.

That increase is with you for life. So, if you live long enough, you’ll eventually gain more overall than if you’d started taking it straight away.

The numbers in practice

Imagine you’re entitled to the full new state pension of £230.25 a week . Deferring for one year would raise it by £13.35 a week, or around £694 a year. The trade-off? By choosing to wait a year, you’d miss out on receiving £11,973 of state pension income in that first year.

And it would take some 17 years after you start claiming to make up that shortfall. So, if you deferred at 66 and started at 67, you’d need to live until about 84 to come out ahead.

That’s why deferring often suits those who are in good health, have other sources of income, or expect to live a long life.

The potential benefits

For some, deferring can be a smart part of a wider retirement plan.

If you’re still working or have other income sources, adding your state pension to your earnings could push you into a higher tax band. Waiting until your earnings fall - for example, once you stop working - might mean you pay less tax overall, depending on your total income in each tax year.

However, this won’t apply to everyone. If you have a significant pension or other investment income in retirement, a higher state pension later on could also increase the amount of tax you pay. Tax rules can be complex and depend on your individual circumstances, so you may want to consult a tax specialist before making a decision.

You might also decide to defer because you simply don’t need the money yet. If your workplace or private pensions cover your spending, letting your state pension grow in the background can feel like building an extra layer of financial comfort for later life.

And there’s the longevity factor. If you expect to live well into your 80s or beyond, a higher guaranteed income can make your later years easier to plan for - especially when other savings or investments might have been drawn down.

The downsides

Deferring isn’t without risk. The biggest of which is time. You’ll need to live long enough for the higher payments to outweigh what you’ve missed by waiting. For some, it’s a gamble that doesn’t pay off.

Health is another key consideration. If you’re not in great health, or if your family history suggests a shorter life expectancy, deferring may leave you worse off.

There are also important things to consider if you die while deferring your State Pension. Whether any extra State Pension can be inherited depends on individual circumstances, including how long the pension was deferred and which State Pension rules apply. You can read more about this on the government’s website.

If you’re receiving benefits such as Pension Credit, Universal Credit or Income Support, deferring could affect your entitlement once you start receiving your State Pension. A higher pension may reduce means-tested benefits or other related support.

What to think about before deciding

Before you choose whether to defer, it’s worth asking yourself a few questions:

• Do you need the income now? If your other pensions or savings cover your costs, waiting might make sense.
• What’s your health like? Longevity matters more here than almost any other factor.
• How will it affect your tax? Your state pension counts as taxable income, so the timing of when you take it could affect how much tax you pay in a given year. Check what your income is likely to be now and in the future before deciding what’s best for you.
• Are you receiving benefits? Some benefits don’t increase if you defer and might even be reduced once you start claiming a higher pension.
• What gives you peace of mind? Sometimes the certainty of regular income now is worth more than a slightly bigger amount later.

Alternatives to deferring

If your goal is simply to increase your pension income, there are other routes worth exploring. You can check your National Insurance record to see if there are any missing years and consider topping them up. Buying voluntary National Insurance contributions can be good value in some cases. You might also be entitled to free National Insurance credits, such as for childcare or caring responsibilities.

It's personal. Take your time and weigh things up

Deferring your state pension can be a useful option if you’re in good health, don’t need the money right away and expect your income to change in the coming years. It can give you a higher guaranteed income for later life, which might suit those planning for a long retirement.

But for others, the risks outweigh the rewards. If you rely on every pound of income, have health concerns, or are eligible for means-tested benefits, taking the pension as soon as you can is usually the better move.

Ultimately, this is a personal decision. The best approach is to look at your income, your health, and your priorities for retirement - and make the choice that feels right for you.