More Money in Retirement – The State Pension Secret You Need to Know

Recent findings reveal a startling fact: a significant number of UK retirees, particularly those aged 55 and above, are in the dark about a key aspect of their State Pension that could potentially enhance their retirement income. A survey conducted by Just Group has highlighted a widespread lack of awareness of the option to defer receiving the State Pension, a choice that could lead to a more comfortable financial future for many.

Who’s Missing Out?

The survey, which polled 1,050 retired and semi-retired individuals, brought to light that 22% of retirees are not informed about the possibility of deferring their State Pension. This lack of awareness is most pronounced among those aged 55-64, a demographic on the cusp of making crucial pension decisions, with 25% admitting they didn’t know deferring was an option.

Interestingly, the gap in knowledge is more pronounced among women, with 26% unaware of this option compared to 19% of men. Additionally, a quarter of those aged 75 and older also reported being in the dark about this opportunity. Despite its benefits, only a small fraction (7%) of those over 55 have taken advantage of deferring their State Pension.

How Deferring Works

For those reaching the State Pension age—currently 66—there exists a choice: start claiming the pension or opt to defer it. This decision isn’t final, as current recipients can still choose to defer, albeit only once. The benefit of deferring, however, hinges on when you reach State Pension age, with differing incentives for those who reached it before or on/after April 6, 2016.

For the Post-April 2016 Cohort

Individuals reaching State Pension age on or after this date can see their weekly pension increase by 1% for every nine weeks they defer, translating to nearly 5.8% extra income for each deferred year. With the triple lock guarantee, this could mean an additional £12.78 weekly for those deferring from April 2024, amounting to an extra £664.58 annually.

For the Pre-April 2016 Cohort

Those who reached State Pension age before this cut-off benefit from even more generous terms. Deferring results in a 1% increase for every five weeks, leading to a 10.4% annual boost. This can either augment weekly income or be received as a lump sum, providing a substantial financial advantage.

Weighing the Decision

Stephen Lowe, a spokesperson from Just Group, emphasises the potential benefits, “Deferring can be good option for people who don’t need the income immediately – perhaps because they are still working or have other sources of cash – so it is disappointing a quarter of those approaching State Pension age don’t know about the option. While deferring might not be the right option for everyone, it should still be something everyone knows about given that the State Pension is widely considered a ‘bread and butter’ source of income in retirement, with 3.4 million retired households relying on it for more than half of their yearly income. Deferring has become less attractive in recent years because the terms have become less generous for those who reached State Pension age on or after 6 April 2016 and there is no option to take the deferred income as a lump sum. However, even for those who reached State Pension age after that date, in some circumstances it can still make sense to forego some income in the short term for a higher income in later life that is currently guaranteed to keep up with inflation.”

The Takeaway

The State Pension, while straightforward in concept, harbors complexities that can significantly impact retirees’ financial health. Awareness and understanding of all available options, including deferral, are crucial for maximising retirement income. This survey’s findings underscore the need for better information dissemination to ensure that all retirees can make informed choices about their financial futures.