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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Putting off (deferring) claiming the state pension

Normally, you start to receive your state pension when you reach state pension age. But you have the option of deferring your pension. State pension deferral means that you delay claiming, or stop receiving your state pension, until a time that suits you. This page explains more about the tax consequences of deferral, and about some related benefits issues.

Content on this page:

Overview

Deferring your state pension may mean that you get extra money in the future. If you reached state pension age before 6 April 2016, you can take the extra money as a lump sum payment or as extra state pension. If you reach state pension age on or after 6 April 2016, you can only get extra state pension – no lump sum is available.

Reasons to defer

There are many reasons why you might choose to defer your state pension. Some of the most common might be:

  • There is no financial need for you to take the income immediately and you regard the financial terms for deferral offered by the Pensions Service as an attractive form of saving.
  • You are putting off claiming state pension until you have stopped working and may then pay no tax (or a lower rate of tax) on an increased regular state pension.
  • You are using deferral as a method of saving tax by converting taxable pension into a potentially tax-free or lower-taxed lump sum. The exact tax treatment will depend on your circumstances when you take the lump sum (note: a lump sum is only available if you reached state pension age before 6 April 2016).
  • You are using deferral as a method of maximising your tax credits claim.
  • You are using deferral as a method of receiving a better value from your state pension if you are resident in a country where the UK does not give annual increases, for example, Australia.

  You will also need to consider the effects of inflation, which we do not take into account in this guidance.

Stopping deferral

What happens when you stop deferring your state pension depends on what age you reached state pension age.

State pension age before 6 April 2016

If you reached state pension age before 6 April 2016, a deferring your state pension would give you two possible options when you decide eventually to claim it.

When you tell the Pension Service that you would like to claim your deferred state pension, they will write to you asking which of the two options you wish to go for. You have three months to decide.

These options are detailed on GOV.UK and also summarised below:

Extra state pension

You can earn extra state pension at 1% of the weekly pension for every five weeks you put off claiming. For example, if you defer your state pension of £100 for the minimum period of nine weeks, your state pension would go up to £101 a week from week ten when you start to take it. If you go for this option, the increased pension is just taxed as normal from the point of claim. We explain more about this below in ‘Tax effect of deferral’.

Lump sum payment

You can choose to take a lump sum rather than an increased rate of pension. The amount of the lump sum is the amount of state pension not claimed plus interest which is added each week and compounded. The rate is roughly 2% above the Bank of England's base rate. To get a lump sum, you have to put off claiming your state pension for at least 12 consecutive months.

The lump sum is taxable, because the state pension is taxable income. However, it is not taxed in quite the same way as regular state pension income. You can choose to receive the lump sum in the tax year you stop deferring or delay the payment of the lump sum to the following tax year – which depending on your circumstances may be more beneficial for tax purposes. There is more information on how state pension lump sums are taxed below in Tax effect of deferral’ and on our page Tax on deferred state pension lump sums.

Example

Fred and Elsa deferred their state pensions from 6 April 2015. In May 2023 they stop deferring and claim their pensions. They inform the Pensions Service of this decision. So, from May 2023 they are paid their normal state pension.

They then receive notices which explain to them that they could choose to receive some extra state pension or they could choose to receive a lump sum. The notices also explain that they have three months from the date on the notice to make their decision.

They wait until July 2023 before each choosing a lump sum. The lump sum that had accrued to them between 6 April 2015 and May 2023 is paid to them shortly afterwards. Their lump sums are taxable in the 2023/24 tax year.

Reach state pension age on or after 6 April 2016

If you reached state pension age on or after 6 April 2016 and decided to defer claiming, any built up entitlement to state pension is paid to you as extra state pension – so your regular payment will be increased. You do not have the option to receive a lump sum.

The extra pension will be paid with your normal state pension and taxed in the usual way, as explained below.

Tax effect of deferral

The state pension, including any extra state pension, is taxable income even though no tax is deducted before it is paid to you. HM Revenue & Customs (HMRC) take it into account when they set your Pay As You Earn (PAYE) code for any other private pension income you might have. If the state pension is your only source of income or your total taxable income is less than the personal allowance (£12,570 for 2023/24), no tax will actually be payable. We explain tax on the state pension further on our page How tax is collected on the state pension.

If you reached state pension age before 6 April 2016 and choose to take a state pension lump sum, it will be taxable in the tax year in which you eventually decide to claim it or, in certain circumstances, the following year. The tax rate on your lump sum will not exceed the rate at which you are already paying income tax.

For more information on the taxation of state pension lump sums see or page Tax on deferred state pension lump sums.

Effect on tax credits

The amount of pension deferred will not count as income for tax credits while it is being deferred. That is, you only count your state pension as income for tax credits purposes if you actually claim it.

Extra state pension, if and when it starts to be paid, will count as income for tax credit purposes.

For those who reached state pension age before 6 April 2016 and choose a lump sum, this will also count as income for tax credits purposes in the year in which you claim to end the deferral unless you delay receiving the lump sum until the start of the next tax year. It might be beneficial to delay it if, for example, you would not be entitled to tax credits anyway for the later year.

The rules for pension credit and universal credit are different and you should seek specific advice – see our Getting Help page – if claiming universal credit whilst deferring your pension.

Further information

The DWP have published a guide on deferring your state pension, for those who reached state pension age before 6 April 2016, which you can find on GOV.UK.

GOV.UK has more general information on the basic state pension.

GOV.UK has more information about the new state pension – if you reach state pension age on or after 6 April 2016.

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