Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
You’ve worked out your state pension age, checked for any gaps in your National Insurance record and know what amount you’re due to receive. But how do you get your state pension paid and is there any benefit to deferring it?
Although you should get a letter with an invitation code around four months before you reach your state pension age, you’ll need to actually claim your state pension when the time comes – it doesn’t start automatically.
What do I need to claim my state pension?
When you claim your state pension, you’ll need to provide three pieces of information:
- the dates of any marriage, civil partnership or divorce
- the dates of any time you spent living or working abroad
- your bank or building society account details
If you’re applying online, you’ll also need the invitation code from the letter about your state pension.
If you can’t find a letter, you can request an invitation code if you’re within three months of your state pension age.
You can also claim by telephoning the Pension Service. You can apply by post if you’d prefer, but you’ll still need to telephone the Pension Service to request a paper claim form.
The process is slightly different if you are claiming your state pension from abroad.
What happens if I defer my state pension?
If you don’t claim your state pension, then your payments will be deferred. You can also to ask to pause payments if you are already receiving them.
You’ll get 1% extra state pension for every nine weeks you defer taking your state pension, as long as you defer for at least nine weeks initially. This works out at an annual rate of around 5.8% over a whole year. The extra amount is paid along with your regular state pension payment when you claim it. The obvious benefit is that you’ll have more money coming in when you do claim.
For example, let’s say you decide to defer your state pension for a year, so you get an increase of 5.8%. When you start taking the state pension, you’ll get 5.8% more on your payments, for as long as you take the state pension. Based on a yearly state pension of £11,973, this would mean an additional £694 per year. However, you’d be missing out on the original £11,973 you would have been paid the year before. One of the main benefits of deferring your pension can come if it changes your tax bracket.
Although the state pension is paid gross – without tax deducted – it still counts towards your taxable income. If you’re still working, then the start of your state pension could tip you into a higher tax bracket. This could also mean you pay a higher rate of tax on your savings and lose some of your tax-free personal savings allowance. So, if you’d like to continue working, and defer your claim until your income is lower later in retirement when you stop work, you’ll probably pay less tax.
But you’ll still be missing out on money initially. Although the triple lock means the state pension changes each year, it usually takes between 19 and 20 years from state pension age to break even, regardless of how many years you defer for. This means if you die before then, you might have received less money by deferring.
Charlene Young: Senior Pensions and Savings Expert
Charlene Young is AJ Bell’s Senior Pensions and Savings Expert. She joined AJ Bell in 2014 from a wealth management firm where she worked with private clients and small businesses as a financial planner.
Charlene...
