Deferring your state pension. Good or bad idea?

Most people don’t even question the ‘when’ to take their state pension. You reach state pension age, and you apply for it. But there’s another option - you can choose to delay taking it.

But is this a good or bad idea?

By deferring, you’ll eventually receive a higher amount each week, which can make financial sense in certain situations. But for others, the numbers just don’t add up.

Here’s what you need to know before deciding whether to take it now or wait.

What happens when you defer

The State Pension age is rising from 66 to 67 between April 2026 and March 2028. If you were born between 6 April 1960 and 5 March 1961, your State Pension age won’t simply be 66; it could be 66 plus a number of additional months, depending on your exact date of birth.

If you do not claim your State Pension when you reach that age, it will not be paid and is effectively deferred until you decide to claim it.

During that time, your future payments grow.

If you reached State Pension age on or after 6 April 2016, any increase is paid through higher regular payments. You can also choose to backdate your claim by up to 12 months and receive a one-off arrears payment for that period (with no interest added), with any remaining deferral paid as higher regular income.

The option to take a larger lump sum with interest only applies to those who reached State Pension age before 6 April 2016.

Those who reached State Pension age before 6 April 2016 are covered by different rules, including a different rate of increase.

That increase is with you for life. So, if you live long enough, you’ll eventually gain more overall than if you’d started taking it straight away.

The numbers in practice

Imagine you’re entitled to the full new State Pension of £241.30 a week. Deferring for one year would increase it by around £13.95 a week, or roughly £725 a year. The trade-off? By choosing to wait a year, you’d miss out on about £12,548 of State Pension income during that time.

So, if you deferred at 66 and started at 67, you’d need to live until around 84 to come out ahead.

That’s why deferring often suits those who are in good health, have other sources of income, or expect to live a long life.

Of course, this is a simplified illustration and doesn’t account for factors such as tax, annual State Pension increases, inflation or individual circumstances.

The potential benefits

For some, deferring can be a smart part of a wider retirement plan.

If you’re still working or have other income sources, adding your state pension to your earnings could push you into a higher tax band. Waiting until your earnings fall - for example, once you stop working - might mean you pay less tax overall, depending on your total income in each tax year.

However, this won’t apply to everyone. If you have a significant pension or other investment income in retirement, a higher state pension later on could also increase the amount of tax you pay. Tax rules can be complex and depend on your individual circumstances, so you may want to consult a tax specialist before making a decision.

You might also decide to defer because you simply don’t need the money yet. If your workplace or private pensions cover your spending, letting your state pension grow in the background can feel like building an extra layer of financial comfort for later life.

And there’s the longevity factor. If you expect to live well into your 80s or beyond, a higher guaranteed income can make your later years easier to plan for - especially when other savings or investments might have been drawn down.

The downsides

Deferring isn’t without risk. The biggest of which is time. You’ll need to live long enough for the higher payments to outweigh what you’ve missed by waiting. For some, it’s a gamble that doesn’t pay off.

Health is another key consideration. If you’re not in great health, or if your family history suggests a shorter life expectancy, deferring may leave you worse off.

There are also important things to consider if you die while deferring your State Pension. Whether any extra State Pension can be inherited depends on individual circumstances, including how long the pension was deferred and which State Pension rules apply. You can read more about this on the government’s website.

You cannot build up extra State Pension during periods when you or your partner receive certain benefits, such as Pension Credit or Universal Credit.

And once you start receiving a higher State Pension, it could reduce some means-tested benefits, as this counts as income.

What to think about before deciding

Before you choose whether to defer, it’s worth asking yourself a few questions:

• Do you need the income now? If your other pensions or savings cover your costs, waiting might make sense.
• What’s your health like? Longevity matters more here than almost any other factor.
• How will it affect your tax? Your state pension counts as taxable income, so the timing of when you take it could affect how much tax you pay in a given year. Check what your income is likely to be now and in the future before deciding what’s best for you.
• Are you receiving benefits? Some benefits don’t increase if you defer and might even be reduced once you start claiming a higher pension.
• What gives you peace of mind? Sometimes the certainty of regular income now is worth more than a slightly bigger amount later.

Alternatives to deferring

If your goal is simply to increase your pension income, there are other routes worth exploring. You can check your National Insurance record to see if there are any missing years and consider topping them up. Buying voluntary National Insurance contributions can be good value in some cases. You might also be entitled to free National Insurance credits, such as for childcare or caring responsibilities.

Good or bad idea? It's personal. Take your time and weigh things up

Deferring your state pension can be a useful option if you’re in good health, don’t need the money right away and expect your income to change in the coming years. It can give you a higher guaranteed income for later life, which might suit those planning for a long retirement.

But for others, the risks outweigh the rewards. If you rely on every pound of income, have health concerns, or are eligible for means-tested benefits, taking the pension as soon as you can is usually the better move.

Ultimately, this is a personal decision. The best approach is to look at your income, your health, and your priorities for retirement - and make the choice that feels right for you.

Important information: investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.