Published On: Thu, Dec 30th, 2021

State pension increase: How to get more money by doing nothing | Personal Finance | Finance

Financial security in retirement is a valid concern for many people, and as a result, Britons may look for ways to boost their income after they stop working. State pension deferral is one potential way that people could get more money in retirement.

People who have reached state pension age do not have to claim their pension right away. If they choose, they can delay or defer their state pension.

State pension deferral can be done regardless of whether someone has already begun receiving their money or not.

By deferring, Britons may be able to get extra money, increasing the value of their state pension over time.

In order to get the state pension, people need to actually claim it. Therefore, anyone wanting to defer their state pension does not need to do anything, as it will automatically defer until they claim. However, this is not the case for everyone.

READ MORE: State pension ‘not going to be enough’ – how Britons can get by in retirement

To earn more money by deferring the state pension, Britons must delay claiming their cash for a minimum amount of time.

Exactly how long depends on which version of the state pension someone is entitled to.

Those who reached (or will reach) state pension age on or after April 6, 2016 are entitled to the new state pension.

They must defer for a minimum period of nine weeks to get any extra money. For every nine weeks, their state pension entitlement will increase by one percent.

This means that by deferring for a whole year, an extra 5.8 percent of state pension would be due.

The full new state pension is currently worth £179.60 per week, which means someone delaying taking their pension for a full year would boost their weekly entitlement up to £189.98.

The rules are slightly different for people who reached retirement age before April 6, 2016, and therefore fall under the basic (old) state pension rules.

People in this category only need to defer for a minimum of five weeks to build up additional state pension, with each set of five weeks earning them an extra one percent.

This means that for each full year deferred, they would get around 10.4 percent more state pension.

However, those who fall under the old rules also have an option to take a lump sum payment when claiming their deferred pension.

Usually, the extra amount amassed is paid on top of people’s normal state pension payments, but if someone who reached state pension age before April 6, 2016 defers for at least 12 months, they can choose to receive their additional money as a lump sum instead.

Britons will be taxed on their deferred state pension once they finally decide to start claiming it, regardless of whether they are under the old or new state pension rules or if they claimed their extra pension weekly or as a lump sum.

State pension deferral will not suit everyone, so it may be worth consulting with a financial advisor before making any decisions.

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