One in nine UK pensioners have deferred state pension

Victoria McKeever reports...

One in nine UK pensioners – more than 1.5 million people – have deferred taking their state pension, according to data held by the Department of Work and Pensions (DWP).

As of September 2016, 1.56 million (11%) of the 12.95 million people in receipt of their state pension had deferred it, according to a freedom of information request submitted to the DWP by Old Mutual Wealth (OMW).

Of those, one and a half million to have deferred, almost one-third received a lump sum, which was an option available from April 2005 to April 2016.

Those within four months of being able to claim their state pension age can either choose to claim it or do nothing. If someone chooses the latter option, their pension would then be automatically deferred until they decide to claim it.

For this group, deferring their state pension meant payments increased 1% every five weeks, which equated to 10.8% for each year of deferral.

For those who reached state pension age on or after 6 April 2016, however, deferral is significantly less generous – payments increased by a little less than 5.8% for each year of deferral.

For those who qualify for the full new state pension of £155.65 per week, or £8,093.80 annually, deferring for one year could see an annual boost of £469.44, OMW said.

This amount will then also increase in line with the consumer price index (CPI), the group added. Assuming a CPI rate rise of 3%, it would take someone around 15 years to recoup the £8,093 forgone, according to OMW.

OMW head of retirement policy Jon Greer said: “Before the changes to the state pension, if you could afford to defer it was a relatively generous option and it makes sense that many pensioners appear to have benefited from it – although not all will have made the conscious decision to do so.

“This option is no longer, however, as valuable as it used to be. Average life expectancy at 65 is 18.8 years for men and 21.2 years for women.

He added: “If you invested the state pension you receive over a year and assume a return that meets inflation, and compared that with the extra pension you would get by deferring over a similar period, it is of negligible benefit for men and only slightly better for women.”