Martin Lewis shares simple way to increase New State Pension payments by £660 each year

Many people approaching the official age of retirement this year may not be aware they could increase future State Pension payments by choosing not to claim the contributory benefit. Deferring your State Pension could add an extra £660 each year on to the annual payments, however, consumer champion Martin Lewis says it’s something that might only benefit certain groups of people.

Writing in the latest edition of the MoneySavingExpert.com newsletter, the financial guru explained how the State Pension is boosted by 5.8 per cent for each year or half-year that you defer claiming. He said: “It's actually designed to be fairly neutral for someone who lives a typical lifespan - you gain if you live longer, lose if you die sooner.”

He added the main groups of people who might consider deferring are those who are “likely to live longer” as they are in “ great health and have a history of longevity” and those who are “likely to pay tax at a lower rate later on than now, so deferring would help”.

There’s a handy step-by-step guide on deferring the State Pension on the MoneySavingexpert.com website here.

A recent survey of 1,050 retired and semi-retired people by later-life specialist Just Group found a quarter (25%) of those aged 55-64 are unaware of the option to defer their State Pension.

The official age of retirement is 66 for men and women, but is set to rise to 67 between 2026 and 2028 under current UK Government plans.

Those who are eligible for the New State Pension (post April 2016) can benefit from a one per cent increase in their weekly State Pension for every nine weeks they delay claiming the payment, equivalent to nearly 5.8 per cent extra income for every full year deferred.

Just group explained with the Triple Lock boosting the annual New State Pension to £221.20 each week over the 2024/25 financial year. People due to retire, who choose to defer claiming the State Pension, will benefit from an extra £12.78 every week - equivalent to a boost of £664.58 over the next 12 months.

Those who reached retirement age before April 6, 2016, but chose to defer claiming the Basic State Pension, are treated more generously, according to Just Group.

These retirees receive an extra one per cent State Pension income for every five weeks deferred, equal to an annual rise of 10.4 per cent or £916.66, which can be taken either as extra income or a lump sum.

The Just Group research indicated women (26%) were significantly more likely than men (19%) not to know about the possibility of deferring the State Pension, while 26 per cent of those aged 75 and over also did not know deferral was an option.

New State Pension payment rates 2024/25

• Full payment rate: £221.20
• Every four-week pay period: £884.80

Basic State Pension payment rates 2024/25

• Category A or B Basic State Pension (full rate): £169.50
• Every four-week pay period: £678.00
• Category B (lower) Basic State Pension - spouse or civil partner's insurance: £101.55
• Category C or D - non-contributory: £101.55

State Pension and Personal Tax Allowance

The Personal Tax Allowance threshold will remain frozen at £12,570 during the 2024/25 financial year, which means older people with an income of more than £242 per week may have to pay income tax.

Over the 2024/25 financial year, the full New State Pension will be worth £11,502, leaving just £1,068 before the personal tax threshold is exceeded, so anyone with additional income of £89 or more per week - on top of State Pension - may receive a tax bill the following year.

Similarly, someone on the full rate of the Old or Basic State Pension will see annual payments go up £8,814. This leaves just £3,756 before the personal tax threshold is exceeded, equivalent to additional income totalling £313 per month.

In such cases, HM Revenue and Customs (HMRC) could operate a system known as ‘simple assessment’.

Under ‘simple assessment’, the DWP would notify HMRC at the end of a tax year how much State Pension people have received. If this takes someone over the income tax threshold, there would then be a tax bill to be paid.

The income tax threshold has been frozen at £12,570 since 2021/22.

More than 22,300 people have signed an online petition calling for tax on State Pension and benefits to be scrapped - find out more here.