12 hours Ago By Claire Schofield
Pensioners in receipt of certain benefits are being urged not to defer claiming their State Pension once they reach retirement age. The State Pension is not paid to you automatically once you reach State Pension age - you have to tell the Department for Work and Pensions ( DWP ) that you want to claim it. You should receive a letter no later than two months before reaching State Pension age, which is currently 66 for men and women, and you have the option to either claim it or defer.
Deferring your State Pension can be an attractive option for some as it can increase the payments you get once you decide to claim in the future, but it’s not necessarily the best option for everyone. If you reach State Pension age on or after April 6, 2016, your State Pension payments will increase by the equivalent of 1% for every nine weeks you choose to defer, which works out as just under 5.8% for every 52 weeks.
So if you get the full new State Pension (currently worth £230.25 per week), by deferring for 52 weeks you’ll get an extra £13.35 per week - or £694.
20 over a year. But while deferral for a year can currently give you a £694 boost, it’s important to think about the money you’ll miss out on due to this decision, particularly if you’re in receipt of some benefits. Pension experts warn that claimants of Pension Credit, Income Support, Housing Benefit and Council Tax Reduction are unlikely to gain any advantage by deferring and could risk losing their entitlement to these benefits by doing so.
Investment management firm Charles Stanley explains: “Very broadly, you'd need to live at least 20 years after taking your State Pension to be better off deferring – for the uplift in the amount to make up for the years of income given up. This is similar to the time an average 66 year old is expected to live. However, in some circumstances the ‘breakeven point’ can occur at a lower age once you take tax into account.
“It is important to note that if you or your partner is in receipt of certain benefits such as Pension Credit or Income Support you should not defer the State Pension . There is no advantage in doing so and it could even mean a reduction in payments.” A key reason pensioners may opt to defer is to avoid paying tax on their pension income.
If they’re still earning, or drawing down from a private pension, they could lose money from their State Pension to tax, so deferring for a year can help avoid that loss. But the 5.8% reward for deferring doesn’t go up the longer you choose to wait, so it means deferral because less good value as each year passes.
It also means that you’ll miss out on a year of income which, if you get the full new State Pension , is currently worth £11,973 annually, and you may lose your benefits entitlement as well. Citizens Advice adds: “You can choose to keep on working, whether paid or on a voluntary basis, while claiming your State Pension . Any money you earn will not affect your State Pension , but it may affect your entitlement to other benefits such as Pension Credit, Housing Benefit and Council Tax Reduction.
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