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How much you will get

If you choose to put off claiming your State Pension for at least 12 consecutive months you can get a one-off lump sum payment instead. This will be in addition to your normal State Pension. The 12 consecutive months must all have fallen after 5 April 2005.

When claiming your payment, it will be based on the amount of normal weekly State Pension you would have received, plus weekly interest added and compounded.

Claiming other benefits

If you choose a lump sum payment and you claim Pension Credit, Housing Benefit or Council Tax Benefit, these benefits will not be affected.

If you have put off claiming your State Pension and are claiming other benefits, then days that you receive these benefits will not count towards any lump sum payment. These benefits include:

• Carer's Allowance
• Contribution based Employment and Support Allowance
• Incapacity Benefit
• Severe Disablement Allowance, Widow's Pension
• Widowed Mother's Allowance
• Unemployability Supplement or any type of State Pension

An increase in any of these benefits paid to someone else for you will not count towards extra State Pension. This does not apply if you are not living with the person getting the increase, unless they are your husband or wife.

Days that you receive Graduated Retirement Benefit or Shared Additional Pension will count towards an extra State Pension.

You will not build up extra State Pension for any days that you would not have been allowed to get a State Pension even if you had been claiming it. For example, if you are in prison.

Tax and tax credits

Tax

Your lump sum is taxed at the highest tax rate that applies to your other income. This will help make sure that the lump sum payment will not push you into a higher tax bracket.

For example, if the highest rate of tax applicable to your other income is 20 per cent, your lump sum will be taxed at 20 per cent. This is instead of being counted with your other income which might take you into the 40 per cent tax band.

If you choose a lump sum, you will be asked to complete a simple statement so that tax can be deducted from your payment before it is paid to you. The tax office check the amount at the end of the tax year. They repay any amount due to you if you have paid too much tax or ask you to make up the difference if you have paid too little.

You can choose to take the lump sum when you claim your State Pension or in the following tax year. This is likely to help if your income falls after you have claimed State Pension, for example because you no longer work.

The tax effects will depend on your particular circumstances. Contact your tax office if you have specific tax enquiries.

Tax credits

A lump sum payment can count as a payment of income for Tax Credits purposes.

This can happen when you get Tax Credits for all or part of the same tax year that you start claiming State Pension and you choose a lump sum payment. You can ask for your lump sum payment to be held back until the start of the next tax year.

If you’re no longer getting Tax Credits in that later year, it will not affect your entitlement to Tax Credits.

Inheritance

Your widow, widower or surviving civil partner may get extra State Pension added to their own State Pension after your death. This could happen if you had already claimed your State Pension and chosen extra State Pension before your death.

If you had already claimed your State Pension and chosen a lump sum and then died, any amount you still had left will form part of your estate in the normal way.

Before 2010

Until April 2010, widowers and surviving civil partners have to be of State Pension age or over to be entitled to the lump sum payment.

How much can you inherit?

The amount of lump sum payment payable to a widow, widower or surviving civil partner will be based on:

• all of the deceased’s basic State Pension
• between 50 and 100 per cent of any additional State Pension which would have been payable to the deceased (depending on the date the deceased reached, or would have reached State Pension age)

If you are a woman who is widowed while you are still under State Pension age, you will not be able to get a lump sum payment based on your late husband’s contributions if you remarry before you reach State Pension age. Similar rules will apply to widowers and survivng civil partners from April 2010.

Extra State Pension

If you put off claiming your State Pension, you can choose to claim extra State Pension, instead of a lump sum payment.

Follow the link below for information on the extra State Pension.

• Extra State Pension