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Understanding the Rules Surrounding State Pension Deferral

Understanding the Rules Surrounding State Pension Deferral

An exam question on State pension deferral is often a possibility if the client in one of your R06 case studies is approaching retirement (as they very often are!). This subject can also be covered in the CII’s R04, AF7 and J05 exams. So for those of you sitting these exams anytime soon, it’s well worthwhile doing a bit of research on how it works.


There is a significant difference in the rules surrounding State Pension deferral depending on whether someone reaches State pension age (SPA) before or after 6 April 2016.

Reaching SPA before 6 April 2016

For those individuals, who reached SPA before April 2016, the following rules applied:

  • Option to defer their State Pension in return for an increased income or a lump sum.
  • Deferral had to be for at least 5 weeks and in return, the pension amount increased by 1% for every 5 weeks deferred, which worked out as an increase of 10.4% per year.
  • If someone deferred for 12 months, a lump sum could be chosen instead with interest added at 2% above the bank’s base rate.
  • If someone is already in receipt of their State pension, they can subsequently decide to defer the income and the above rules will apply even if deferral is after 6 April 2016.

Reaching SPA on or after 6 April 2016

  • The rules for deferral on or after 6 April 2016 are not as generous
  • Anyone reaching SPA since 2016 has only been able to defer for an increased income; the lump sum option was withdrawn.
  • The deferral period was also increased to at least 9 weeks, with the rate of increase similarly reduced (1% for every 9 weeks); this works out as an increase of just under 5.8% for each full year of deferral.
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Death during deferral?

Under the old rules, if someone died during deferral, then their spouse or civil partner could inherit subject to various conditions set by the DWP.  Under the post-2016 rules, it is not possible for a survivor to inherit deferred State Pension; although, the estate may claim up to 3 months’ arrears of their State Pension.

Is it worth it?

Anyone can put off taking their State pension. Whether it is worth it will depend on circumstances such as the client’s health, their tax position and interest rates.

For those who qualify for a full State pension, they will be giving up more than £9,000 a year in pension that’s not taken.  Deferring for too long will mean being worse off over the long term.

Grab the resources you need!

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