6 April 2005 - New rules on State Pension deferral start today
New rules regarding the options allowing you to defer your state pension come into force from today.
Those who choose to claim their state pension late can now take a lump sum payment, or receive higher weekly pension payments.
For the first time, people who choose to defer their State Pension can receive a one-off taxable lump sum payment instead of a weekly increase, when they finally claim. To be eligible for the lump sum option, you must defer for at least 12 consecutive months. Your lump sum will be based on the amount of weekly State Pension you would have received with an interest rate at 2% above the Bank of England base rate.
If you choose a lump sum, your weekly State Pension will then be paid at the normal rate. To be eligible for extra weekly State Pension people must defer for at least five weeks. Your weekly pension will increase by 1% for every five weeks you do not claim (before 6 April the increase worked out at 1% for every 7 weeks).
The maximum time limit of 5 years that you can put off claiming your State Pension to earn extra State Pension has been removed which means you can now put off claiming State Pension for as long as you want and be able to earn extra State Pension, or a lump sum.
Examples
A person who deferred a state pension entitlement (including Basic State Pension and State Second Pension) of £105 for anytime over one year could get a lump sum of:
- £5,646 if they defer for one year
- £11,673 if they defer for two years
- £32,306 if they defer for five years
Someone on the same rate of State Pension who chooses to receive an increased weekly amount added to their state pension for life instead of the lump sum could receive a total weekly pension of:
- £110.90 if they defer for one year
- £121.80 if they defer for two years
- £154.60 if they defer for five years
Notes for editors
- The Department for Work and Pensions Five Year Strategy is available at: http://www.dwp.gov.uk
- The guide to State Pension Deferral “Your State Pension Choice – Pension
now or extra pension later: A guide to State Pension deferral” is available
at http://www.thepensionservice.gov.uk/pdf/spd/spd1jan05.pdf (312KB)
.
A copy of the leaflet can be ordered by phoning 0845 7 31 32 33. - A person is not required to be in work while deferring his State Pension in order to qualify for a lump sum or increased weekly pension.
- The rate of return on the lump sum will be set at an interest rate of 2% above the base rate and will change when the base rate changes. The examples cited above assume a constant base rate of 4.75 per cent, which means an interest rate of 6.75 per cent for the lump sum for the full period.
- The rate at which State Pension increments accrue is also changing. From 6 April 2005 it increases from the equivalent of 1% of the weekly pension for every 7 weeks of deferral (equivalent to 7.4% per year) to 1% for every 5 weeks.
- From 6 April 2020 State Pension age for both men and women will be 65. The change will be gradually introduced from age 60 to 65 for women over a 10-year period from 2010 to 2020.
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