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Sunday, 30 October 2011

State Pension deferral – taking up your State Pension later

If you put off claiming your State Pension, you can earn either extra State Pension or a one-off taxable lump sum payment. Knowing your options helps you make better decisions when you reach State Pension age.

What is State Pension deferral?

You don’t have to stop working or claim your State Pension when you reach State Pension age. You can put off claiming your State Pension when you reach State Pension age. You can also choose to stop claiming it after having claimed it for a period. Since the State Pension was introduced, people have been able to earn extra State Pension in this way.

The age at which you retire from employment does not affect when you can start getting your State Pension after you reach State Pension age.

Changes to State Pension age

The age you receive your State Pension could be changing. To find out if you are affected, see ‘Calculating your State Pension age’.

More choice when deferring your State Pension

Now that people are living longer and healthier lives, it makes sense to make it easier to work flexibly after State Pension age.

Since 6 April 2005, if you put off claiming your State Pension, you can choose one of the following options when you do claim.

Extra State Pension

If you put off claiming your State Pension for at least five weeks you can earn an increase to your State Pension. The increase will be one per cent for every five weeks you put off claiming.

Once you claim your State Pension, any extra State Pension you have built up will usually increase each year.  For 2011 this will be in line with price inflation.

Claiming a lump sum payment

If you continually delay claiming your State Pension for at least 12 months, you can choose to receive a one-off lump sum payment. Your State Pension will also be paid at the normal rate. To be eligible for this, your delay in claiming must all have fallen after 5 April 2005.

Changes to the rules which affect deferral

From 6 April 2010, it is no longer possible to get a new increase of your State Pension for another adult. This is an ‘adult dependency increase’. It is an increase in your State Pension for a wife, husband or someone who is looking after your children. If he or she is considered to be financially dependent on you.

If you were already entitled to this increase on 5 April 2010, you'll be able to keep it. You will be able to keep it until you no longer meet the conditions for the increase or until 5 April 2020, whichever is first.

What if you reached State Pension age before April 2005?

If you started receiving State Pension before April 2005, you can choose to cancel your claim. You can choose to cancel your claim to build up entitlement to extra State Pension or a lump sum payment.

You can cancel your claim in this way only once. To qualify, you must be normally resident in the UK, in the European Economic Area or Switzerland.

If you haven't claimed your State Pension, when you finally do claim it, you'll get an increase for the period up to 6 April 2005. This is based on the old rate of extra State Pension (about 7.5 per cent for a whole year). This is provided the period is five years or less. For the period falling after that date there is no maximum time limit. You will be eligible for either:

  • an increase based on the new extra State Pension rate (about 10.4 per cent for a whole year)
  • a lump sum payment (if you continue to put off claiming for a further 12 months)

Choosing State Pension deferral – what to do

If you have not yet claimed your State Pension but you want to put off taking it up, you do not need to do anything. But you will need to tell The Pension Service what you want to do if you are already claiming another social security benefit.

If you're already getting your State Pension, but would like to stop claiming it, you should contact your pension centre. The telephone number will be on any letters you have received from your pension centre.

Living abroad

If you live abroad and haven't claimed your State Pension, when you reach State Pension age you may be able to put off claiming it.

If you live outside the UK and have already claimed your State Pension you will not normally be able to stop claiming it.

To stop claiming your State Pension you must live in the UK or in one of the following countries:

Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, The Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland.

You must also be one of the following:

  • a UK national
  • a national of one of the above listed countries
  • entitled to live in one of the above listed countries

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