Deferring the State Pension
Anyone can put off starting to receive their State Pension
When an individual who normally lives outside of the UK decides to end the deferment and claim the benefit, any yearly increases between the date of deferral and the date of claim will be credited.
It is only possible for an individual to stop receiving a State Pension that is already in payment where they reside in the UK or within the EEA.
The amount the state pension can increase by will depend on when the individual reaches SPA
- SPA before 6th April 2016
– Must be deferred for at least 5 weeks to get a higher weekly pension
– The pension will increase by 1% for every 5 weeks (0.2% per week or 10.4% per year)
– Must be deferred for 12 months to get a lump sum or higher weekly payment
– If they choose a lump sum option they will get the amount of state pension payments that have been deferred with a weekly compound interest of 2% above the Bank of England Base Rate.
– An individual who started to receive their State Pension prior to 6 April 2016 may subsequently decide to defer the income and no matter when this deferral takes place, they will be subject to the pre 6 April 2016 rules.
– Possible for a spouse/civil partner to inherit a deferred state pension
- SPA on or after 6th April 2016
– Must be deferred for at least 9 weeks to get a higher weekly pension
– The pension will increase by 1% for every 9 weeks (5.8% per year)
– No option for lump sum payments
– Not possible for a spouse/civil partner to inherit a deferred state pension
Questions - Use Your Note Taker To Jot Down Ideas / Calculations
Ishmael reached his SPA on 7 March 2016 and started to receive his State Pension. In October 2018 he decides that he does not need the income and so opts to defer the payments. Which of the following statements is correct?
a) The minimum time he must defer the payments for in order to receive an increased income is nine weeks.
b) It is possible for his wife to inherit the deferred benefits as long as she satisfies conditions set out by the DWP.
c) His State Pension income will increase at a rate of about 5.8% for each full year he defers drawing it.
d) Ishmael cannot receive the deferred amount as a lump sum, no matter how long he defers the payments.
B)
As Ishmael reached his SPA before 6 April 2016 he will be subject to the pre-6 April 2016 rules when deferring his State Pension. Therefore, his wife can inherit as long as she satisfies the conditions set out by the DWP.
Harry reached his SPA in May 2015. He started to receive his State Pension income but in June 2018 opted to defer these payments. He plans on deferring for at least five years and then proposes to take the deferred benefit as an increased weekly pension. He can therefore expect his weekly payments to have increased by:
a) 0.1% for each week they are deferred.
b) 0.2% for each week they are deferred.
c) 5.2% for each nine week period they are deferred.
d) 10.4% for each nine week period they are deferred.
B)
When the State Pension is deferred and the subsequent increase is taken as income, the income received will be increased at a rate of 0.2% per week/1% for every five weeks of deferral. This equates to 10.4% p.a. This is because Harry reached his SPA prior to 6 April 2016.