Should you defer your state pension and stay in work?

The state pension forms the bedrock of retirement income for many people, but you could increase the amount you get by deferring it.

Delaying when you claim the state pension could boost the amount you get overall by hundreds or even thousands of pounds. But there are a number of things to consider and deferring is not always the best course of action.

Steve Webb, partner at LCP, said: “Some people do not realise that the state pension is not paid automatically when you reach pension age – it is necessary to make a claim. It is also possible to deliberately ‘defer’ taking your state pension in return for a higher pension later.

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“But decisions about whether to work on or stop work are likely to be affected by a range of factors including health or caring responsibilities, and it may be that modest changes to the reward for deferral would have little impact.”

How much extra do you get from deferring?

Those on the new state pension system, paid to men born on or after 6 April 1951 and women born on or after 6 April 1953, get 1% added to weekly payments for every nine weeks of deferral.

This works out as just under 5.8% for every 52 weeks (12 months) you defer for.

For example, the full new state pension is worth £241.30 a week in 2026/27. If you deferred for 52 weeks, you would get an extra £13.99 a week, taking your weekly payment to £255.29.

If you deferred for 104 weeks, you would get an extra £27.99 a week, taking your weekly payment to £269.29.

The triple lock mechanism doesn’t apply to extra payments you get from deferring as annual increases to this element are inflation-linked only.

Under the new state pension system, the higher entitlement is paid either as a one-off arrears payment or increased ongoing payments.

You can only claim a one-off arrears payment of up to 52 weeks, after which point any remaining extra amount is added to your ongoing weekly payments.

For example, let’s say you defer your full new state pension for 78 weeks. You could get a one-off arrears payment of £12,547.60 for the first 52 weeks of deferral.

Then, for the other 26 weeks deferred, you’ll get an extra £6.97 per week (2.89% of £241.30) alongside your state pension payment.

You can defer before and after claiming your state pension, however you can only defer it once after claiming it.

How much extra you can get from deferring the old state pension

A small number of people are still deferred from pre-2016, under the old state pension system.

In this situation, you have a choice between an extra 10.4% of your pension for each year of your deferral or a lump sum plus interest for pension foregone.

If you opt for higher weekly payments, your state pension will increase every week you defer, as long as you defer for at least five weeks.

The extra amount is paid with your regular state pension payment.

For example, say you get £184.90 a week (the full basic state pension). By deferring for 52 weeks, you’ll get an extra £19.22 a week (10.4% of £184.90). This works out as £999.44 over a year.

Or you can get a one-off lump sum payment if you defer claiming your state pension for at least 12 months. This will include interest of 2% above the Bank of England base rate.

You’ll be taxed at your highest income tax rate on your lump sum payment. So, if you’re a basic rate taxpayer, your lump sum will be taxed at 20%. It would be 40% for higher rate taxpayers and 45% for those on the additional rate.

Is deferring the state pension worth it?

You need to weigh up the extra money you will receive by deferring, versus the money given up today.

According to retirement firm Royal London, a basic rate taxpayer delaying taking their state pension for one year from the age of 66 would need to live until around 82 to see the benefit. A higher rate taxpayer of the same age would need to live until 79 to recoup the costs. This is based on 2026/27 allowances and tax bands in England and Wales.

An advantage of deferring is that you can continue working without worrying about the extra income from your state pension increasing your income tax bill. By deferring, you have just one source of income.

However, there are other considerations to factor in when deciding whether deferring is right for you – for example, if you’re not in good health, you may not reap the full benefit.

Increasing your state pension through deferral could also make you ineligible for benefits where eligibility is based on income and savings, such as Pension Credit.

Webb, from LCP, said: “Someone in poor health could find that they missed out on more money by giving up their pension for a period compared with the pay back in the form of higher regular pension for what turned out to be a short period of time.

“The other group which needs to tread carefully is those likely to be receiving means-tested benefits such as Pension Credit or Housing Benefit.

“Any increase in regular state pension as a reward for deferral could be clawed back in part or in full through reduced benefits. If you give up your pension for a period and see little net financial benefit when you do finally claim then you might have done better to have simply taken your pension on time.”

Can you defer a private pension?

It’s possible to defer a private pension but the rules vary depending on the type of pension it is, as well as the particular scheme.

For defined benefit (DB) schemes, some​ may allow you to take your pension later and pay a higher pension but this will vary from scheme to scheme so you’ll need to check the specifics of yours.

If you are in a defined contribution (DC) scheme, then you can usually access your pension from the age of 55 (rising to 57 in 2028) – but can defer taking it if you want to continue working, for instance.

You can contribute to a DC pension and receive tax relief on contributions, up to your annual allowance, which is normally £60,000 per tax year, until the age of 75.

Is deferring a private pension worth it?

DC pensions

Leaving a DC pension pot invested gives it the opportunity to grow further, though the value of your investments can go down in value as well as up.

Clare Moffat, pensions and tax expert at Royal London, said: “One of the biggest advantages of delaying a private DC pension is the flexibility it can provide around tax.

“Someone who is still working may decide to postpone taking pension income to avoid pushing themselves into a higher tax band.

“Equally, some retirees choose to take income gradually so they can make better use of personal allowances and lower tax rates.”

Be wary of delaying taking your tax-free cash too late though. If you die aged 75 or over without taking it then the whole pot is subject to income tax. From April 2027, it will also potentially be at risk of inheritance tax (IHT).

DB pensions

Whether you can defer a DB pension is less clear cut as the rules vary more between schemes.

Delaying one can sometimes result in a higher pension income when payments do begin, but be wary of giving up guaranteed income for the years you’re deferring.

Moffat said: “Anyone considering this should understand the specific terms of their scheme before making a decision.”

Hybrid approach

You could also take a hybrid approach and take your state pension when you become eligible while leaving a DC or DB pension untouched for a few years.

Or, you could withdraw from a DC pension and defer your state pension, however if you do this be wary of the money purchase allowance (MPAA).

This sets a £10,000 limit on how much you can pay into a DC pension and benefit from tax relief. If you go over the MPAA, you’ll also need to pay income tax on the money you’ve paid into the DC pension over the £10,000 threshold through the ‘annual allowance tax charge’.