The warning comes as many pensioners are looking for ways to boost their pension payments – and one way to do this is by deferring your state pension
A warning has been issued as an “easy” state pension mistake could mean you miss out on an extra £3,900 a year.
The warning comes as many pensioners are looking for ways to boost their pension payments. One way to do this is to defer their state pension. Deferring your state pension means you either delay claiming it or stop receiving it if you are already getting your Department for Work and Pensions (DWP) payments.
For every year you delay your state pension, you boost it by just under 5.8%. So for example, if you turn 66 and become eligible for the state pension but defer it for two years, then your payments rise by over 10% when you claim. However, there are some risks to this as if you defer, you could lose out on claiming the DWP’s Pension Credit.
Pension Credit is a DWP benefit for pensioners on a low income and is often described as a “gateway benefit”. This is because when you claim, you can also get other things such as a free TV licence, the DWP’s Winter Fuel Payment of £300, and free dental treatment – amongst other things. The DWP say this boost is worth up to £3,900 a year on average.
Currently, around 800,000 people are eligible to claim but are not doing so. Recently, as the government is pushing Brits to claim, many have discovered that they are not now eligible due to deferring their pension.
Pension Credit tops up your weekly income to £218.15 a week if you are single, or to £332.95 if you’re in a couple. This means if you get more than this then you will not be eligible to claim. Currently, the new state pension sits at £221.20 – so if you are paid the full amount you are already not eligible.
However, if you get less then you could be. Under the current rules, you need 35 qualifying years of National Insurance Contributions (NICs) to get the full amount of the new state pension. So if you have only 34 qualifying years, then you will get 34/35 of a full pension or £214.88 a week. This means you will be able to claim Pension Credit alongside all of its perks.
If you defer your state pension by one year the extra 5.8% takes them up to £227.34 per week – above the Pension Credit level. This means you’ll miss out on the full £3,900 boost.
Former pensions minister and partner at LCP Steve Webb says if their pension payments are short of the full amount, then pensioners should think “very hard before deferring”. He told the Sun: “Not everyone takes their state pension as soon as they reach pension age, and the reward for deferring is an extra 5.8% on your pension for each year you defer. But for people whose pension is short of the full amount, there can be a sting in the tail.
“If your normal pension figure is below pension credit then claiming at retirement means you will get a top-up and all the extras which come with pension credit such as keeping your winter fuel payment. But if you defer even for one year, you might find your pension is now over the pension credit line and that you have lost all of that additional help – potentially for the rest of your retirement.”
The former pensions minister says the DWP should be flagging the “potential knock-on effects” with those who are looking into deferring their state pension.
