State pensioners can add an extra £916 to their pension pot thanks to a little known rule – but it means giving up your pension for an extra year.
Currently, anyone is eligible to claim the state pension at age 66 (assuming you have enough National Insurance history), but this will rise to 67 in 2028, and eventually, 68 by 2048.
It means you’ll have to work for longer, or rely on a private or workplace pension to get by until then if you want to retire sooner.
But there is a little known rule that could add a £916 top up to your pension pot: deferral.
If you choose to defer your state pension by a year, the total you’re paid when you do collect it will increase.
Currently, for every nine weeks you delay taking your state pension, the payout rises by 1 percent.
That makes for a 5.8 percent boost per year, or £666.
These numbers apply to those on the New State Pension, which is currently £221.50 per week but will rise each year in line with the Triple Lock.
That means those who reach state pension age after April 6 2016 will be eligible for the deferral boost, ie those born after 1949.
Those on the old state pension – born before 1949 – could get an extra 10.4 percent added to their £169.50 state pension per week, making for a total of £916 extra per year roughly.
This could be worth doing for example if you want to keep working for another year anyway and you’re making more than the higher or additional tax brackets, which would mean all of your state pension income on top of your income would be taxed at 40 or 45 percent, so you’d lose a fair chunk of it.
The government explains: “You do not get your State Pension automatically – you have to claim it. You should get a letter no later than 2 months before you reach State Pension age, telling you what to do.”
“You can either claim your State Pension or delay (defer) claiming it.”
“If you want to defer, you do not have to do anything. Your pension will automatically be deferred until you claim it.”
As Martin Lewis’ MSE explains: “If you’re 65 and still have an income (perhaps because you’re still working), yet are likely to drop a tax bracket later (when you actually retire, for example) then this is the real boon of deferring your state pension.”
