Should you defer your state pension? Will you be better off?

It's not as good a deal as it once was, and you may miss out on other benefits

portrait of happy caucasian senior woman saving euro coin into piggybank and smiling at camera

Many people are lucky enough to hit retirement age and realise they don't actually need their state pension.

Some are already well-provided for by a private pension; others are still earning.

And if you're in this position, you have the option of postponing the start of your pension in return for a bigger payout later on. Even if you've already started collecting it, you can suspend payments for a similar deal.

Treasury 'could destroy pensions', warns former Minister

Has your state pension been slashed? What can you do?

State pension payouts should be available at earlier age, survey finds

If you haven't yet started claiming, you don't need to do a thing, as the pension will only start when you request it. To suspend payments you're already getting, simply inform the Department for Work and Pensions (DWP).

But what will you gain?

For every five weeks you defer, your pension will increase by 1%, working out at 10.4% for every full year.

The biggest boost comes for people who hit state pension age before 6 April 2016. If they're receiving the basic state pension of £6,203.60, deferring for a year will increase the amount they eventually get by £645 a year.

The deal's not quite so lucrative for people qualifying for the state pension after April 2016, as the rate of annual increase falls from 10.4% to 5.8%. This boosts your eventual pension by £467.48.

But you don't have to take the extra cash in the form of income, as long as you defer for at least a year. Instead, you can choose to receive a lump sum of the amount you've deferred, plus interest at a rate of 2% above the base rate.

But deferring your pension isn't right for everybody - whether or not it's worth it depends on how long you're going to live. If you reached state pension age before April 6 2016, it will take around nine years before breaking even on the deal - 17 years for those reaching retirement age after that date.

And deferring your pension may also mean that you miss out on certain benefits, if you take your bonus as income instead of a lump sum. Bumping up your income in this way may mean you're no longer eligible for certain means-tested benefits such as pension credit, housing benefit and council tax discount.

"For those that have been able to afford to hold off collecting their pay, deferral can generate a significant income boost. Our figures show that it takes around nine years for someone to recoup the state pension they've deferred – and with average life expectancy of a 65 year old now 84 for a man and 86 for a woman, deferring has been a good deal," says Gareth Shaw, head of consumer affairs at Saga Investment Services.

"However, deferring under the new state pension is far less attractive – we found that it would take more than 17 years to earn back the money deferred. Therefore, people will need to think very carefully about whether delaying the state pension is the right thing to do."

How we spend our pensions

How we spend our pensions