State pension tip could get Britons up to 10.4% boost

To receive the state pension, eligible individuals will need to make an active claim as the process is not automatic. Upon reaching state pension age, if a person does not claim, their state pension becomes deferred.

This is a process which could mean their state pension increases over time.

But what does deferring the state pension involve, and is it worth it?

How deferral impacts the state pension depends on which state pension a person receives: old or new.

The new state pension increases for every week of deferral as long as this is done for nine weeks.

Every nine weeks, the increase is the equivalent of one percent, working out at just under 5.8 percent for every 52 weeks.

This extra sum can then be paid as a one-off lump sum or in the form of higher weekly payments.

The basic state pension will rise every week of deferral, with a minimum period of five weeks.

Once again, the increase is equivalent to one percent, but for every five weeks. This works out as 10.4 percent for every 52 weeks of deferral.

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The extra sum is then paid with a person’s regular state pension payment.

Deciding whether deferral of the state pension is worthwhile is a personal decision.

However, there are key elements to consider such as life expectancy, and the implications of tax.

If a person deferred their full new state pension for a year, they would forgo some £10,600.20.

Not including inflation, this would take just over 17 years to earn back this sum through increased weekly payments, according to Rest Less.

Current average life expectancy in the UK from the age of 65 is approximately 19 years for a man and 21 years for a woman.

So, on average, most people will slightly benefit from deferring for at least a year.

However, those with pre-existing medical conditions or a history of family illness may not find the option appropriate.

State pension income is taxable but is usually paid without any tax being deducted.

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But with income tax thresholds frozen, state pension deferral may have implications for one’s tax liability.

The Personal Allowance is being held at £12,570 until April 2028, meaning more people will be dragged into its net.

The amount of income tax people pay is dependent on their total annual income from all sources, including earnings from a state pension.

As a result, a full new state pension of £10,600 a year, plus deferred earnings could propel someone above the threshold, meaning an income tax liability.

In addition, if a person continues to work past their state pension age, these earnings could also impact the tax they are required to pay.

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