Deferred State Pension Lump Sum Payments

Northern_Dad

When you defer your State Pension and take a Lump Sum, what rate do they use to calculate the annual amount?

Is it the rate that applied in each year in question?

Or is the whole lot paid at the LATEST rate?

Come November I will have already deffered for 3 years, but plan to wait a further 2, as I am still working.

Also, presumably it would be best to wait until AFTER the end of that Tax Year to get the best rate, AND to reduce the amount of Income Tax deducted (which I understand will be at 20% on the amount over my Personal Allowance)

Hope someone can advise, as HMRC don't seem to post these kinds of details (and Advisors on the phone don't seem to know) !

p00hsticks

When did you actually reach State Pension Age ? 
If you only reached State Pension Age three years ago, you're under the new State Pension and so deferring will only give you a higher weekly amount, there is no option to take a lump sum

You're only entitled to a lump sum if you reached State Pension Age before 5/4/16. 

Delay (defer) your State Pension: What you'll get - GOV.UK (www.gov.uk)

Marcon

Northern_Dad said:

When you defer your State Pension and take a Lump Sum, what rate do they use to calculate the annual amount?

Is it the rate that applied in each year in question?

Or is the whole lot paid at the LATEST rate?

Come November I will have already deffered for 3 years, but plan to wait a further 2, as I am still working.

All the details are set out on the government website: https://www.gov.uk/deferring-state-pension/what-you-get and if you google on your question, you'll get plenty more explanations e.g. https://www.litrg.org.uk/tax-guides/pensioners/what-state-pension-deferral

Northern_Dad said:

Also, presumably it would be best to wait until AFTER the end of that Tax Year to get the best rate, 

No - the rate is as set out on the link above.

Northern_Dad said:

Also, presumably it would be best to wait until AFTER the end of that Tax Year to get the best rate, AND to reduce the amount of Income Tax deducted (which I understand will be at 20% on the amount over my Personal Allowance)

Hope someone can advise, as HMRC don't seem to post these kinds of details (and Advisors on the phone don't seem to know) !

The amount of tax deducted will depend on what other taxable income you have in the tax year, so not quite sure what 'details' you'd expect HMRC to post, since this will vary from one individual to another.

Northern_Dad

Oh no !  I hadn't realised that.

I was planning to use the deferred Lump Sum to pay off my Mortgage.

Many thanks for pointing that out. (really quite upset now)

Northern_Dad

So when you defer, how do you estimate how much you will get each week?

If I wait until I have deferred for 5 whole years, will I get the applicable amount in that year, plus an extra 10% (roughly) for each year I have deferred?

Marcon

Northern_Dad said:

So when you defer, how do you estimate how much you will get each week?

If I wait until I have deferred for 5 whole years, will I get the applicable amount in that year, plus an extra 10% (roughly) for each year I have deferred?

Where are you getting 10% a year from, assuming you reached state pension age after April 2016? The increase is about 5.8% per annum for each year you defer.

Sarahspangles

Northern_Dad said:

Oh no !  I hadn't realised that.

I was planning to use the deferred Lump Sum to pay off my Mortgage.

Many thanks for pointing that out. (really quite upset now)

I just looked at the page that Marcon linked to and I can see how you could misread the information - the bit about Lump sums has its own heading but relates to the section immediately above which is for people reaching state pension age before the cut off date in 2016.

Sarahspangles

Northern_Dad said:

So when you defer, how do you estimate how much you will get each week?

If I wait until I have deferred for 5 whole years, will I get the applicable amount in that year, plus an extra 10% (roughly) for each year I have deferred?

Look at Marcon’s link, it’s 5.8% extra for each full year past State Pension Age. So I think your extra 5 years would mean about 29% extra on your state pension.

Northern_Dad

Glad you agree that the page I looked at a while ago about Deferred Lump Sums is somewhat unclear.

But 29% extra of the Rate at the time I retired? (which is surely going up at least 5% a year)

That's how I arrived at 10% a year.

Northern_Dad

So in round numbers, do you think I'm likely to end up with about £300 a week if I wait until after April 2026 to start claiming my Pension (which will have meant deferring for 5 years and 5 months)

Sarahspangles

Northern_Dad said:

So in round numbers, do you think I'm likely to end up with about £300 a week if I wait until after April 2026 to start claiming my Pension (which will have meant deferring for 5 years and 5 months)

The way I read it, whatever the full rate is when you retire, you’ll get 129% of that for 5 years deferral and it will go up by about 1% for every 9 weeks over that.  But I’m only a layperson - you really ought to get that confirmed.

I think the state pension is going up 10% this year but every year it depends on the ‘triple lock’ and could be lower.

I assume by the way you’ve qualified for the maximum?