Working part time in retirement is becoming the new norm – but many over 65s do not know they can put off taking their state pension and boost their payments.
If you are one of those would like to know more about deferring the state pension to make some extra cash, here’s a quick guide to how to work the system to your benefit.
Can I defer my state pension?
Yes. Anyone can delay taking their state pension, but the rules are different from April 6, 2015.
You can put off taking the state pension for as long as you want. If you do, the government rewards you by paying a high rate of interest.
How much can I defer?
It’s all or nothing, including any additional state pension entitlement. You can decide to stop taking your pension once you have started drawing the money.
How much do I get back?
For every five weeks, your state pension is boosted by 1% – so on the full state pension of £113.10 a week or £5,881.20 a year. Delaying for a year gives an interest rate of 10.8% and earns you an extra £612 a year.
From April 6, 2015, the government is slashing the deferral interest rate by half to 5.4%, so the same £113.10 a week will earn an extra £306 a year.
Of course, the weekly pension rate will go up to the new flat rate and still stay index-linked, but the deferral rate remains the same. Expect confirmation of next year’s flat rate payment in September.
The current rules allowing a lump sum payment after 12 months will be pulled from April 6, 2015.
Why should I defer my state pension?
If you are phasing in your retirement or have enough cash from other income and do not need the extra pension cash, then the deferral system pays almost double the interest rate you would earn by taking the money and putting it into a savings account.
Another point to consider is your health – if you defer your pension for a year, you will lose that income and if you die young, you won’t see any benefit.
Find out more information about state pension deferral
The government publishes a leaflet explaining how deferring the stat pension works with several worked examples. You can download a copy from the Department of Work and Pensions web site