Many people assume that they should start receiving their state pension from the moment they reach retirement age, but by delaying it may be possible to receive a larger amount when one ends up. receive his state pension. While this is not the right decision for everyone, it could be something to consider for people looking to increase their retirement income.
Old state pension rules
People who retired under the old state pension, i.e. anyone who reached retirement age before 6 April 2016, can receive an additional £ 744.12 per year. These people have flexibility in how they can receive their additional income when the time comes.
By delaying the payment of his state pension for at least 12 consecutive months, one can decide to receive a lump sum rather than a higher weekly income. This lump sum would include interest 2% above the Bank of England base rate and is taxable at the same rate as other income.
When it comes to receiving his deferred pension, retirees will receive a letter asking if they want to receive a lump sum or a higher weekly income. From the date of receipt of the letter, they will then have three months to make their decision.
Retirees can increase their income for each week of deferral, as long as they do so for at least five weeks under the old state pension. The amount will then increase by one percent for every five weeks of deferral, which means that by delaying a full year, retirees would accumulate a 10.4 percent increase.
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New state pension
Under the new state pension, which applies to people born on or after April 6, 2016, the potential increase available is 5.8% for a full year. It would be worth an additional £ 10.42 per week for a year late, or £ 541.67 for the year.
In order for the state pension to increase for each week of delay, it is necessary to defer by at least nine weeks. After these nine weeks, the state pension will increase by the equivalent of one percent and continue to do so every nine weeks thereafter.
When the pension is claimed, the additional amount is included in the final amount that a pensioner receives each week. There is no option to receive a lump sum with the new state pension.
This is unless certain benefits are received before reaching the state retirement age, because in that case, the pension service will have to be told that it wishes to defer. They will also have to do this if they have already started receiving their state pension and now wish to defer.
Deferral of the state pension is possible for anyone living in the United Kingdom, as well as in the following countries: Germany, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Gibraltar, Greece, Hungary , Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Northern Ireland, Norway, Poland, Portugal, Republic of Ireland, Slovakia, Slovenia, Spain, Sweden or Switzerland.
However, it should be noted that a person cannot receive an additional state pension if they are in receipt of certain benefits, and the deferral of their pension can also affect the amount of benefits they can receive.
One will not have to pay tax on his state pension during the time he is not receiving it, and the tax payable when he finally begins to receive the state pension that has been deferred depends on of how the money is paid. If a person reaches the legal retirement age after April 6, 2016, they will receive their supplementary state pension in the form of increased income, which will be taxable as income from work normally.
However, those who reached the legal retirement age before April 6, 2016 have a choice. If they decide to receive their deferred state pension as increased income, it will be taxable as labor income in the normal way. But if one chooses to have his additional state pension paid as a lump sum, it will be taxed at the current rate of income tax.