State pension: You can increase your payments by almost 6% but it may raise tax costs

Martin Lewis offers advice on consolidating pensions

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State pension eligibility is dependent on National Insurance records, with at least 10 years of contributions needed to receive anything in retirement. If a person has at least 35 years of contributions under their belt, they’ll be able to receive the “full” state pension of £175.20 per week.

State pensions can be claimed when a person reaches their state pension age, which is currently sitting at 66 but will be increased to 68 in the coming years.

However, if a retiree defers their state pension claim, they may be able to increase the eventual payments beyond even the “full” amount.

State pension payments will increase for every week of deferment, so long as the claimant defers for at least nine weeks.

The payments will increase by the equivalent of one percent for every nine weeks of deferment.

This will work out at just under 5.8 percent for every 52 weeks.

The extra amount will be paid with the regular state pension payments when a person eventually claims.

While it’s possible to increase state pension payments it should be noted that doing so may increase tax costs, and so the benefit will need to be weighed up.

A person will pay income tax if their total income adds up to more than the personal allowance, which is currently £12,500.

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A person’s total income could include:

  • State pension payments
  • Additional state pensions
  • Private pensions
  • Earnings from employment or self-employment
  • Taxable benefits
  • Any other income such as money from investments, property or savings

If a person has deferred their state pension for a year or less they can apply for their payments online when they’re ready.

Additionally, it is also possible to make a claim over the phone or through the post.

If deferment has lasted for more than a year, claimants will need to call the Pension Service to claim.

There are different claiming processes for those based in Northern Ireland or further abroad.

Regardless of when a person claims their state pension, the payments themselves are guaranteed to rise every year under triple lock rules.

The triple lock ensures payments will rise by the highest of:

  • Earnings – the average percentage growth in wages in the UK
  • Prices – the percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI)
  • 2.5 percent

From April 2021, all state pension payments will rise by 2.5 percent.

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