State Pension 

One in nine pensioners defers state pension

One in nine pensioners defers state pension

Around 1.6 million people in receipt of their state pension deferred taking it as of September 2016, according to data from the Department of Work & Pensions (DWP).

Around the same time, there were 12.95 million in receipt of the state pension, which means one in nine pensioners has chosen to defer taking their pot of cash.

According to Old Mutual Wealth, which submitted a freedom of information request to the DWP on this matter, these numbers may decline.

This is due to the fact that those who are reaching state pension age now, who receive the new state pension, may see little worth in deferring.

In April 2016 the government changed state pension rules so that eligibility became based on national insurance contributions.

In order to receive the full £155.65 per week individuals would need to have paid NI for at least 35 years.

From the 1.6 million individuals, 457,060 received a lump sum, an option available from April 2005 to April 2016.

The 1.1 million people who opted to receive a higher ongoing pension will, apart from a very small number, have reached their state pension age before 6 April 2016.

For these people, deferring state pension meant payments went up 1 per cent every five weeks, which equates to 10.8 per cent for each year it is deferred, Old Mutual Wealth calculated.

But if you reached state pension age on or after 6 April 2016, deferral is significantly less generous as payments increase by just under 5.8 per cent for each year of deferral.

According to Jon Greer, head of retirement policy at Old Mutual Wealth, deferring the state pension was a relatively generous option before the changes made by the government.

He said: “However, this option is no longer as valuable as it used to be. Average life expectancy at 65 is 18.8 years for men and 21.2 for women.

“If you invested the state pension you receive over a year and assume a return that meets inflation, and compared that with the extra pension you would get by deferring over a similar period it is of negligible benefit for men and only slightly better for women. 

“Of course, the decision also needs to take account of a person’s health, their tax position and the effect it will have on benefits such as pension credit and housing benefit, and those considering deferring should seek appropriate advice or guidance.”

According to Malcolm McLean, senior consultant with Barnett Waddingham, these numbers are not surprising.

He said: “The reasons for pensioners deferring their state pension is to get a bigger weekly pension at a later date when they decide they want and/or need to start receiving it.

“This would typically be someone who perhaps was still working on past their state pension age or was in receipt of a generous private pension, had no immediate financial need to access their pension and was in reasonable good health with a normal or above average life expectancy.

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