Many state pensioners in the UK may not realize that by deferring their state pension payments from the Department for Work and Pensions (DWP), they can secure an extra £694 per year (tax-free) as a permanent boost to their pension income.
This strategy—officially sanctioned—can be especially beneficial for those who do not immediately rely on their state pension, who remain in work, or who wish to optimize long-term income in retirement.
How Deferring the State Pension Works
The basic mechanism
- If you reach State Pension age on or after 6 April 2016, your pension is the “new state pension”. You can defer it in blocks of at least 9 weeks, and for each 9-week period you defer, your pension increases by 1 %. That equates to just under 5.8 % over a full 52-week year.
- For example, if you receive the full new state pension (e.g. £230.25/week), deferring for a year gives you ~£13.35 extra per week, or about £694.20 extra per year.
- That uplift is then permanent — once claimed, your increased pension amount continues through retirement (adjusting for inflation, etc.).
For those who reached pension age before 6 April 2016
- They may have the option to take a lump sum or increase weekly payments.
- The weekly increase works on a 1 % per 5-week deferral basis (i.e. ~10.4 % over 52 weeks).
- The lump sum option comes with interest (e.g. 2 % above Bank of England base rate) and is taxed in the year you claim.
Additional details
- The extra amount after deferral is paid with your regular State Pension income.
- If you or your partner are receiving certain benefits, your pension will not increase during the time you or your partner claim those benefits.
- Time spent in prison does not count toward deferral qualifying periods.
- After claiming, the increased amount itself will typically increase each year in line with the Consumer Price Index (CPI) (i.e. inflation).
The “Extra £694” — What It Means
The oft-reported figure of £694 extra per year refers to a person receiving the full new state pension rate, who defers for a full 52 weeks. That boost (~5.8 %) translates to ~£13.35 extra per week × 52 = £694.20.
That amount is tax-free at the point of pension payment — no tax is deducted by DWP before payment. However, your total taxable income (including state pension plus any private or workplace pensions) may influence your overall income tax liability via your PAYE code.
If your total income (including the boosted pension) remains under the personal allowance threshold (currently £12,570 for 2025/26), you may still pay no tax overall.
Table: Summary of Key Figures & Terms
| Aspect / Variable | Detail / Value |
|---|---|
| Deferral rate (new pension) | 1 % per 9 weeks (≈ 5.8 % per full year) |
| Extra per week (full pension) | ~ £13.35 for full pension |
| Extra per year | ~ £694.20 |
| Tax at source | None (tax-free at payment) |
| Taxation on total income | Depends on total income and PAYE code |
| Inflation adjustment | Extra increase typically rises with CPI annually |
| Requirements for full pension | ~ 35 years of qualifying National Insurance contributions |
| Deferral disallowed periods | While claiming certain benefits, prison time |
| Pre-2016 pension deferral rate | 1 % per 5 weeks (~10.4 % per year) or lump sum option |
Who Stands to Benefit Most?
- Pensioners still in work, whose additional state pension would otherwise push them into a higher tax bracket — deferral avoids immediate taxation on that portion.
- Those who don’t need the income immediately and are comfortable foregoing payments temporarily.
- Pensioners with lower alternative incomes, so that the boosted pension remains tax-efficient in the long term.
- People with full new state pension entitlement (i.e. ~35 years’ of NICs); those with incomplete records may see proportionally smaller gains, though the same percentage uplift applies.
However, those in poor health or who rely on pension income right away may lose out by deferring. Also, if you are eligible for means-tested benefits, delaying may affect eligibility or reduce benefit entitlement.
Risks & Trade-Offs
- You forgo pension income during deferral, which might be burdensome if you need the cash early.
- If you live only a short time after claiming, the total extra gained might not compensate for the lost years.
- It may affect eligibility for other benefits, including means-tested benefits or Pension Credit.
- If inflation or tax changes reduce the real value of the uplift, the benefit may erode.
- For pre-2016 claimants, choosing the wrong option (lump sum vs increased weekly payments) may be disadvantageous in certain tax years.
Deferring your state pension is a legal, government-sanctioned method to secure a permanent uplift in pension income, often estimated at £694 extra per year (for those with the full new pension). The uplift is tax-free at source, though your total income will still be assessed by HMRC for tax.
FAQs
Is the extra £694 truly tax-free?
Yes — the extra amount resulting from pension deferral is paid without tax being withheld by the DWP. However, your overall taxable income will be considered by HMRC under your PAYE code.
Can anyone defer and get this boost?
Not everyone. You must be eligible for state pension (especially the new state pension) and not be in periods of disqualification (e.g. claiming certain benefits or prison). Also, those who reached pension age before 6 April 2016 have somewhat different rules.
How long do I have to defer to get the full £694?
You need to defer for a full 52 weeks (one year) to achieve the approximate 5.8 % uplift that gives ~£694 extra for someone receiving the full new state pension.