DWP state pension explained - can you defer or stop your payments
With more Brits living longer and working later - many are deciding to hold off from claiming their state pension - but how does that work?
Normally, you start to receive your Department for Work and Pensions (DWP) state pension when you reach state pension age which at the moment is 66 years old and currently, there are around 12.6million people claiming it in the UK. Once you turn 66, you don't automatically receive it instead you will receive an invitation letter from the Pensions Service four months before inviting you to make a claim, the letter will also tell you how you can do that.
However, if you feel like you are not ready to claim your state pension you can hold off and this is called "pension deferral". According to Gov.uk, if you want to defer, you do not have to do anything. Your pension will automatically be deferred until you claim it. Deferring your state pension could increase the payments you get when you decide to claim it - however, this depends on when you reached 66.
If you reach state pension age on or after 6 April 2016 your payments will increase every week you defer, as long as you defer for at least nine weeks. Your payments will increase by around 1% for every nine weeks you defer which works out at just under 5.8% for each year. You'll get this increase in higher weekly payments.
If you reached the state pension age before 6 April 2016 you can usually take your extra state pension as either higher weekly payments or a one-off lump sum. Your weekly payments will rise as long as you defer for five weeks. The Government website says the increase will be the equivalent of 1% for every five weeks you defer - this works out as 10.4% each year.
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You will get a one-off lump sum payment if you defer your state pension for at least 12 months in a row. This will include interest of 2% above the Bank of England base rate.
Many Brits may not be aware that they can stop their state pension payments if have already started claiming. However, it is very important to know that you can only do this once during your retirement.
If you want to stop your payments, you will need to contact the Pensions Service and tell them what date you want to stop claiming from, this has to be a date within four weeks in the future. You can contact the Pension Service by calling 0800 731 0469.
If you’ve delayed claiming your state pension or stopped getting it for a while, you may need to pay tax on it. You won’t pay tax on it when you’re not getting it but will once you start receiving it. The Tax you pay will depend on how the money is paid to you.
If you choose to have the state pension you didn’t get paid as an increased income, this will be taxable as earned income in the normal way. If you choose to have it as a lump sum, this will be taxed at your current rate of Income Tax on your lump sum payment. For example, if you’re a basic rate taxpayer your lump sum will be taxed at 20%.
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