State Pension: Anger as benefit of deferral cut by 50%


State Pension: Benefits for deferral cut by halfThe Government has announced that from April 2016, the increased State Pension given to people who decide to defer retirement will be cut by almost 50%.

Currently, people who defer taking their State Pension can choose to receive a higher income when they do finally retire, or receive a lump sum.

The existing rules mean that people who defer, will get an extra 10.4% added to their State Pension each year, when they finally take the it, for every 12 months they defer. Alternatively, for people who defer for more than a year, a lump sum can be taken, equivalent to the total amount of income deferred, plus interest at a rate of 2% above the Bank of England base rate, currently 0.5%.

Everything you need to know about deferring your State Pension


Incentive cut

For many people deferring their State Pension is an attractive option. However, it has been announced that from April 2016, the annual increase for deferring the State Pension will be cut to 5.8%.

Importantly though, anyone who has currently deferred their State Pension and continues to do so past April 2016 will still qualify for the higher, 10.4%, annual increase.

The Government is making the change because it believes the option to defer does not encourage people to work longer. In addition, by 2020 the move will save £200 million each year.

The exact details are not yet known and will be confirmed later in the year, Steve Webb, the Pensions Minister, said: “It is my intention to bring forward draft regulations later this year, under the powers in the Pension Act 2014, which will set out the proposed rate. These regulations will be subject to the affirmative procedure.” (Source: Department for Work and Pensions)

Why do people defer their State Pension?

Working for 30 or 40 years, only to defer your State Pension, might sound like an unusual step to take. But there are a number of reasons why, for some people, it can make sense:

  • If you do not want to retire yet and don’t need the income the State Pension will provide
  • If the additional income you will get from the State Pension when you do finally retire will help you meet your expenditure in retirement
  • If you believe the additional return, either in the form of a higher State Pension or the interest on a lump sum, is better than the return you can make by taking the pension
  • If you have other sources of income which you prefer to spend
  • If taking the State Pension would push you into a higher rate of tax, possibly because you are still working, then you may prefer to defer it until you have retired when your tax rate may be lower

Only after the exact details are revealed later in the year will it become clear whether deferring your State Pension is still an attractive option.

We’re here to help

Deciding whether to defer your State Pension is a complex decision and cannot be taken without considering your other pensions and options for creating an income.

Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. If you are approaching retirement and would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email