Delay your state pension to avoid a bigger tax bill

Models of elderly people on a pile of coins and bank notes
Rising life expectancy and changing work patterns have pushed more than a million people into working beyond the age of 65 Credit:  Joe Giddens/PA

People who work into retirement are being urged to delay taking the state pension to save themselves thousands in unnecessary income tax.

As many as 520,000 people are still earning an income at the same time as receiving state pension payments, figures published by pension firm Royal London last week have shown.

Rising life expectancy and changing work patterns have pushed more than a million people into working beyond the age of 65. Many of those will be pushed into a higher tax bracket than necessary, paying 20p or 40p in the pound.

Sir Steve Webb, director of policy at Royal London, said the Government needed to do more to highlight the option to this growing band of older workers. “If your earnings are enough to support you, it makes sense to consider deferring taking a state pension so that less of it disappears in tax,” he said.

The deferral option is little known among pensioners. Even less used is the ability to start and stop payments, though this can be done only once.

The rules changed in April 2016, when the new “flat rate” state pension took effect. Under the new rules, your state pension increases for every week you defer, subject to a minimum of nine weeks.

  • Reader Service: Get expert pension advice from a local adviser with W88 เทคนิค คา สิ โน

For instance, if you qualify for the full new state pension you will be entitled to £164.35 a week, or £8,546 a year. Delaying by a year would boost your payments by £493 a year. The bonus recognises the increased likelihood of dying as you get older.

You would need to live a further 17 years to ensure that the money received from the higher delayed pension outweighed the loss of the first year of income.

For the week's most important personal finance news, analysis and expert advice, from pensions and property to investment ideas and savings tips, sign up to our .