Help! State pension deferral boost means I miss out on pension credit

I was born in March 1948. I kept working until I was 67. I had deferred my pension – thus I get £1108.36 every four weeks.

I own and have paid for my small semi-detached bungalow. Being single I receive 25 per cent off council tax.

I didn’t know that because of deferring, making my income above basic pension, I am taxed on it and do not qualify for pension credit and all its associated benefits. Thus I pay for the dentist and so on.

I would like you to make other people realise my mistake of carrying on and deferring. I would also like your advice on anything else I can claim. 

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Steve Webb replies: Your experiences are unfortunately a reminder to people that before they consider deferring their state pension they should make sure that it will not adversely affect any benefits they would otherwise get in retirement.

You reached pension age in 2008 at the age of 60 but chose to defer taking your state pension.

Under the old state pension system (for those who reached pension age before 6 April 2016) you could benefit from deferral in one of two ways – either by taking a lump sum to cover the pension you didn’t draw or by having a permanently enhanced pension.

You chose to go for the higher pension, and you received an uplift of 10.4 per cent for each year you deferred.

If you deferred for exactly seven years you would get an extra 72.8 per cent on your pension.

The problem with this, as you have discovered, is that you have gone from having a pension below the pension credit level to one above.

At today’s rates, a single person can qualify for pension credit if they have weekly income from pensions and so on of under £182.60.

Your current pension is around £277 per week so you miss out, but without the bonus for deferral it would have been something like £161 and you would have then been entitled.

As you appreciate, there’s a list of things that you would get if you were on pension credit as well as the weekly payment.

This includes automatic help with rent, full council tax support, cold weather payments when it is freezing for seven days, a ‘warm home discount’ on your energy bills, extra Government help with the cost of living and so on.

Even for those who wouldn’t get pension credit, any enhanced level of state pension because of deferral can reduce entitlement to other means-tested benefits such as housing benefit (for renters) and help with council tax.

As a rough rule of thumb, anyone thinking of deferring taking their state pension should think twice if they might be entitled to *any* means-tested benefit in retirement.

In terms of things that you could claim now, I’m afraid that your income – which is now about 50 per cent above the pension credit level – means you would be unlikely to qualify for anything purely on low income grounds.

Instead, your annual state pension (based on 13 four-weekly payments of £1108) is around £14,400 and this means you even have to pay income tax on the part of your pension above the tax-free personal allowance of £12,570.

I think it is a long shot, but one option would be to complain if you feel that you were not properly informed at the time of deferring about the consequences of doing so.

However, I’ve had a look at the gov.uk website page on state pension deferral and it does explicitly say: ‘Deferring can also affect how much you can get in benefits.’

If that information was available at the time then sadly there may not be much that can be done now.

I’m grateful to you for taking the trouble to share your experiences which are indeed a warning to others to check carefully before deferring their state pension.

The reward for deferring is now lower under the new state pension system – 5.8 per cent extra per year, and no lump sum option unless you backdate your claim for 12 months and lose the uplift for that period.

However, the same thing could still happen to others, especially if they defer for several years.