Claiming deferred State Pension

esbeningvar

I retired from Self-Employment some years ago, but deferred claiming my State Pension. I’m now trying to claim it but am confused by the question “What date do you want to claim State Pension from?”

On enquiry they say the first option is to claim from 21/02/24 as that is the furthest they can backdate a claim - if I claim from that date the deferral would cover the period 06/01/12 to 21/02/24 and the pension would be paid from 21/02/24.

Alternatively, I can claim from a current date such as 21/02/25 which is when they received my claim form. In this case the deferral period would cover 06/01/12 to 20/02/25 and the pension would be paid from 20/02/25.

My problem is that I do not know what the implications are for the two alternative dates and so cannot make a choice.  Can anyone help explain? I should add that I am in excellent health and come from a long-lived family!

Thanks in advance for any thoughts.

Marcon

esbeningvar said:

I retired from Self-Employment some years ago, but deferred claiming my State Pension. I’m now trying to claim it but am confused by the question “What date do you want to claim State Pension from?”

On enquiry they say the first option is to claim from 21/02/24 as that is the furthest they can backdate a claim - if I claim from that date the deferral would cover the period 06/01/12 to 21/02/24 and the pension would be paid from 21/02/24.

Alternatively, I can claim from a current date such as 21/02/25 which is when they received my claim form. In this case the deferral period would cover 06/01/12 to 20/02/25 and the pension would be paid from 20/02/25.

My problem is that I do not know what the implications are for the two alternative dates and so cannot make a choice.  Can anyone help explain? I should add that I am in excellent health and come from a long-lived family!

Thanks in advance for any thoughts.

How are you planning to take it? Given you reached State Pension Age before April 2016, you have a choice between taking a lump sum (covering the deferral period), or higher weekly payments going forward.

There is a very strange quirk in the tax treatment of lump sums arising from deferred state pensions. Have a look at https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/tax-deferred-state-pension-lump-sums and read the section headed 'Tax on the lump sum'.

Linton

From the dates you give it would appear you reached State Pension Age prior to April 2016, presumably 6/1/2012.  Therefore your SP is based on pre 2016 rules whch means you can get a remarkably generous extra 10.4% (not compounded)  added to your SP for each year deferred. This would more than double your SP.

The other important factor is that if you defer for less than a year you get the money you missed out on as a lump sum with no addition. If it's longer than a year you can get a lump sum compounded by 2% above the BoE interest rate.

In your case the problem is life expectancy. From the dates you have given you would be around 78 now. At that age the average life expectancy is about 9 years if you are male and 11 years if you are female. Assuming you are average this limits the benefit you would get from the higher SP and may favour taking the lump sum.  If you expect to live longer than average the extra income may be more attractive.

On the other hand, depending on your financial circumstances a higher ongoing income may be more beneficial in itself. I think the difference in total sum received is fairly marginal since the 10% higher SP/year moves into profit after 10 years which matches average life expectancy, but have not worked it out.

The next thing to consider is whether you effectively make the age at which you take SP a year earlier and so get one less year deferred but receive the 2024/2025 year as a lump sum.  Again it's a matter of maths with I think only a marginal difference and so you can reasonably choose whatever best suits your needs.

Another factor which may make a difference is tax.  A lump sum is taxed at the rate that would apply without the lump sum.  The ongoing payments will be taxed at your full marginal rate.

esbeningvar

Many thanks to you both for your replies which adds some useful clarification. Food for thought!