What is a deferred pension?

A deferred pension is a pension that you delay taking until later in life. The longer you wait before accessing your savings, the higher your potential retirement income could be.

Delaying taking a pension is a great way to boost your savings and can help ensure a comfortable retirement. It’s relatively straightforward to defer your State Pension, however you’ll need to check with your personal or workplace pension scheme for further information.

Deferring a personal or workplace pension

You can currently withdraw the money in your personal or workplace pensions from the age of 55. If, for example, you’d like to wait until your early-60s, or begin drawing it at the same time as your State Pension, you’ll need to defer it.

Most modern workplace and personal pensions are defined contribution pensions which are valued on the amount of money you pay in and how your investments perform over time. If you defer a defined contribution pension there’s potential for your savings to continue growing as your money will be invested for longer.

When you defer a pension, you can either continue making contributions or stop paying into your pension. If you choose to keep paying into your pension you can continue receiving tax relief on contributions until the age of 75, up to £40,000 a year (2019/20). If you keep paying into a workplace pension, and meet the criteria for Auto-Enrolment, you should continue receiving contributions from your employer.

If you have a defined benefit or ‘final salary’ pension you’ll need to check whether deferring your pension forfeits any income guarantees and benefits you stand to gain, such as a guaranteed annuity rate or lump sum payment upon retirement. As this type of pension isn’t linked to investment performance, it’s unlikely that deferring a defined benefit pension will result in a higher retirement income.

Different pension schemes and providers will have different deadlines and restrictions on deferring a pension, and you may have to pay some charges. It’s worth contacting your pension scheme administrator to find out more information well in advance of your expected retirement age to ensure you allow yourself enough time to follow the correct procedure.

Deferring State Pension

The UK State Pension age is currently set at 65 for men and women. While you cannot access your pension entitlement before this age, you can delay it until you’re older than 65. If you choose to defer your State Pension you’ll receive a higher income based on the amount you would have received, plus interest. Depending on when you’re due to reach State Pension age, delaying claiming State Pension could make you eligible for a lump-sum payment.

  • State Pension age before 6 April 2016

For every 5 weeks that you defer your State Pension, the amount you receive will increase by around 1%, totalling 10.4% over a year. If you qualify for the basic State Pension and defer it for a year, the amount you’ll receive will increase from £129.20 a week to £142.64 a week (2019/20). If you defer for a year or more, you could qualify for a lump sum payment.

  • State Pension age after 6 April 2016

For every 9 weeks that you defer your State Pension, the amount you receive will increase by around 1%, totalling 5.8% over a year. If you qualify for the new State Pension and defer it for a year, the amount you’ll receive will increase from £168.60 a week to £178.34 a week (2019/20). If you’ve reached State Pension age since 6 April 2016 or are due to, you won’t be eligible to receive a lump sum payment.

You’ll need at least 10 years of National Insurance Contributions to qualify for the new State Pension and 35 years to receive the full amount. You can check State Pension entitlement online and if you haven’t paid enough National Insurance, deferring your pension could help you to improve your contribution record.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 09-04-2019

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