Britons do not get the state pension automatically, and will have to claim it once they reach state pension age. However, if they do not claim, this is a process known as deferral, which could increase the payments one gets when they do decide to claim the sum.
One of the key pros of deferring the state pension is increased weekly payments – but there is a difference between the old and new systems.
For the older, basic state pension, the sum will increase every week a person defers, as long as this is done for at least five weeks.
The state pension increases by the equivalent of one percent for every five weeks, working out as 10.4 percent for every 52 weeks.
If someone defers the full basic state pension for 52 weeks, they could get an extra £14.75 – or more, if the triple lock kicks in.
READ MORE: HMRC issues warning as Britons get ‘refund email’
Firstly, there is a longevity risk involved if a person puts off claiming their state pension as soon as they are eligible for it.
If a person lives less time than they are expecting, they may not benefit from the state pension if they were deferring it at their death, or if they had only been claiming for a limited amount of time.
If someone relies on their state pension for day-to-day expenses, deferring the sum might not be a good idea as they could struggle to make ends meet in the present.
Some suggest deferral of the state pension runs the risk of future changes to the system.
Certain experts have suggested the triple lock could be “scrapped” in the future, and there is always the possibility for rules to change – regardless of whether this has been announced or not.
People should also be aware any extra payments they get from deferring could be taxed, so it is important to stay alert.
In addition, the Government website adds: “You cannot get extra state pension if you get certain benefits. Deferring can also affect how much you can get in benefits.”
Ultimately, deferring the state pension should be a considered and measured decision.
Some may wish to consult with an independent financial advisor who can help them to understand the pros and cons for their individual circumstances.
By taking the time to understand the risks and benefits of deferring the state pension, Britons can ensure they are making a decision which is right for their financial future.
