Approaching retirement, individuals in the UK have the potential to increase their annual pension income by nearly £700. Despite this opportunity, many are unaware of this option.
Recent data from the Department for Work and Pensions (DWP) indicates that a significant proportion of individuals are not informed about the possibility of deferring their State Pension, which could lead to higher retirement income. A study conducted by retirement specialist Just Group revealed that 66% of those aged 40-65 were unaware that they could delay claiming their State Pension beyond the designated age.
Among the 34% who were aware of the deferral option, a third (33%) were uncertain about how delaying would affect their regular payouts, while an additional eight percent believed they would receive the same or less amount. The data also highlighted low rates of State Pension deferral, with only 10% of adults aged 66-75 reporting that they had postponed claiming the benefit.
The most common reasons cited for deferring the State Pension included not needing the funds immediately upon reaching State Pension age (49%), being attracted to the prospect of higher future income (48%), and waiting until retirement from work (20%).
Individuals receiving the New State Pension can benefit from a one percent increase in their weekly State Pension for every nine weeks of deferral, translating to approximately 5.8% extra income per year of postponement.
For the 2025/26 financial year, those who delay their payments could receive an additional £13.35 per week, totaling £694.20 annually for life, along with potential inflation-linked increases. Stephen Lowe, the group communications director at Just Group, emphasized that deferring the State Pension presents a trade-off between immediate full payments and enhanced future benefits.
The Triple Lock mechanism will result in a substantial increase in State Pension for millions of pensioners from April, with the final component confirmed by the Office for National Statistics (ONS). The Consumer Price Index (CPI) figure for September at 3.8% will trigger an increase in the New and Basic State Pensions under the earnings growth measure of 4.8%.
Under the Triple Lock system, the New and Basic State Pensions rise annually based on the highest of three figures: average annual earnings growth, CPI inflation rate, or 2.5%. Additional State Pension elements and deferred State Pensions increase in line with the September CPI figure.
It is important to note that the amount of State Pension received is contingent on an individual’s National Insurance contributions, with approximately 35 years needed to qualify for the full New State Pension. Chancellor Rachel Reeves is expected to confirm the annual uprating at the Autumn Budget on 26 November.
Regarding State Pension and tax, the Personal Allowance will remain frozen until April 2028, and individuals solely on the full New State Pension may not be subject to income tax for the next two years. However, older individuals with additional income may be liable for tax on the excess amount.
Tax on State Pension is based on income exceeding the personal allowance, and any tax due is typically paid a year later. If the uplift in the 2025/26 financial year pushes an individual above the tax threshold, HM Revenue and Customs (HMRC) will issue a tax bill in July 2026.