What Happens if I Defer My State Pension and Die?
Deferring your State Pension is an option many people consider to increase future income. However, not everyone realises the consequences this decision can have in the event of death.
Understanding what happens to your deferred pension when you die is vital for estate planning and ensuring your loved ones are not left with unexpected complications.
The outcome depends largely on when you reached State Pension age and your marital status. This guide explains everything you need to know in simple, clear terms.
What Is a Deferred State Pension?
A deferred State Pension is when you choose to delay claiming your pension after reaching the eligible age. Instead of starting payments immediately, you let your entitlement grow. In the UK, this deferral can increase the total amount you eventually receive.
The rules differ depending on when you reached State Pension age. If it was before 6 April 2016, your pension grows faster and you have the option of taking a lump sum.
If you reached it on or after 6 April 2016, your pension only increases with regular payments and no lump sum option is available.
Deferral happens automatically if you do not claim your pension. The longer you defer, the more you may get, but this also comes with tax and inheritance implications, especially if you die before making a claim.
Why Do People Choose to Defer Their State Pension?
Many choose to defer their State Pension for financial benefits or personal planning reasons. Here are some of the most common motivations:
- Higher weekly payments for life if you defer
- Lump sum option available for those eligible under the old State Pension rules
- Tax efficiency, especially if your income will be lower in future years
- You’re still working and don’t need the income yet
- Estate planning, as some deferred amounts can be inherited
Deferral can lead to a significant increase in pension income over time. Under the old system, deferring for 52 weeks could result in over 10% more per week.
However, timing, benefit entitlements, and other personal circumstances should be carefully considered before choosing to defer. It is always recommended to evaluate both the short-term and long-term outcomes.
What Happens If You Defer Your State Pension and Die?
What happens to your deferred State Pension after death depends heavily on whether you reached State Pension age before or after 6 April 2016.
If you reached State Pension age on or after 6 April 2016:
- The additional pension cannot be inherited by your spouse or civil partner
- A three-month backdated payment is made to your estate
- The remaining value becomes part of your estate
If you reached State Pension age before 6 April 2016:
- Your spouse or civil partner may inherit some or all of the deferred amount
- If you deferred for more than a year, they can choose between a lump sum or increased weekly payments
- They must have been in a marriage or civil partnership with you at the time of your death
This difference in inheritance rights is essential for estate planning. The value is not lost, but who receives it and how depends on both timing and relationship status.
Deferred pension funds that are not inherited may increase the total value of your estate and affect how it is distributed under your will or intestacy rules.
What Is the Lump Sum Rule for a Deferred State Pension?
The lump sum option applies only to people who reached State Pension age before 6 April 2016 and who defer claiming for 12 months or more.
This one-off payment includes the full amount of pension you missed during deferral, plus interest at 2% above the Bank of England base rate.
Here’s what to know:
- You can only opt for a lump sum if you’re eligible under the old State Pension rules
- You’ll be asked to choose between weekly increases or a lump sum when you claim
- The lump sum is taxed at your current rate (e.g. 20% for basic rate taxpayers)
This flexibility allows pensioners to tailor their income to their financial needs. It’s especially useful for those wanting to avoid higher tax brackets or needing a large sum for specific purposes, such as home renovations or debt repayment.
Can Family Members Claim Your Deferred State Pension?
Whether family members can claim your deferred pension depends on your pension scheme and their relationship to you.
If you reached State Pension age before 6 April 2016, your spouse or civil partner may inherit some or all of your deferred pension. The specific amount depends on how long you deferred and whether you were married at the time of your death.
If you reached pension age after 6 April 2016, your deferred amount is not passed on to family members. However, three months’ worth of pension payments may be issued to your estate, which could benefit your heirs indirectly.
Children and other relatives do not qualify for inheritance of the deferred pension. Only legal spouses or civil partners are eligible, and even then, only under certain conditions. This makes planning and understanding your pension rights essential.
Is Deferred State Pension Taxable After Death?
Yes, any deferred State Pension can be taxable after death, depending on how it’s received and who inherits it. If it’s paid out as a lump sum, it is taxed at the deceased’s marginal tax rate. For example, if the person was a basic rate taxpayer, the lump sum will be taxed at 20%.
Below is a table outlining taxation rules:
| Situation | Tax Rule |
| Deferred pension taken as a lump sum | Taxed at the recipient’s rate |
| Deferred weekly increase claimed by the surviving partner | Taxable as regular pension income |
| Lump sum becomes part of the estate | May be subject to Inheritance Tax (IHT) |
| Spouse inherits under old rules | Taxable depending on total income |
Pension income is always part of taxable income unless it falls below the personal allowance. Beneficiaries should consult a financial adviser to understand the tax implications fully.
Is the Lump Sum From a Deferred Pension Subject to Inheritance Tax?
The lump sum from a deferred pension may become part of your taxable estate, which could trigger Inheritance Tax (IHT) if your total estate exceeds the current IHT threshold.
While the pension itself is not directly taxed under IHT rules, if the lump sum is paid to your estate, it contributes to your estate’s overall value.
Key points:
- Lump sums form part of your estate if not claimed
- IHT is only applicable if your total estate exceeds £325,000
- Spouses or civil partners may inherit tax-free, depending on eligibility
If you’re considering deferring your pension for a lump sum, it’s worth discussing the potential tax implications with a professional. Tax planning can make a significant difference in what your beneficiaries ultimately receive.
Who Should You Contact About Deferring or Claiming a Deceased Pension?
When dealing with a deferred State Pension after someone’s death, it’s important to contact the right government departments to ensure the process is completed correctly.
Here’s who to contact:
- Department for Work and Pensions (DWP) to inform them of the death and discuss options
- Pension Service for claims and inheritance issues
- International Pension Centre if the deceased lived abroad
- MoneyHelper for independent guidance and tools
You’ll need documents such as the death certificate, National Insurance number, and confirmation of marital status.
For those inheriting under the old State Pension rules, the DWP will send a letter with options. Prompt communication ensures a smoother process and helps beneficiaries receive what they are entitled to.
Does the Deferred Pension Form Part of Your Estate?
Yes, any deferred State Pension that hasn’t been claimed forms part of your estate if you die before taking it. This means that, even if your spouse or civil partner cannot inherit it directly (as under the new State Pension rules), the amount is not lost.
It becomes part of your total property and assets and will be distributed according to your will or intestacy laws. The pension itself may not be directly inheritable, but the value can still benefit your heirs through your estate.
This is especially important when calculating Inheritance Tax liabilities. Including your deferred pension value could push your estate over the IHT threshold.
Executors should declare the value of the deferred pension when administering the estate. Financial planning can help you control this outcome.
Conclusion
Understanding what happens to your State Pension when you defer and then pass away is essential for informed retirement and estate planning.
Whether or not your family can inherit your pension depends entirely on when you reached pension age and your marital status. For those on the older scheme, inheritance options are more generous, while the newer system offers limited backdated payments.
Taxation and estate implications must also be considered. If you’re unsure, seek professional advice to ensure your deferred pension benefits your loved ones the way you intend.
Frequently Asked Questions
Can I cancel my state pension deferral?
Yes, you can cancel your deferral before receiving any extra payments. You’ll need to contact the Pension Service directly.
How do I notify DWP of a death when the pension was deferred?
You can inform the DWP through the “Tell Us Once” service or by contacting the Pension Service with the necessary documents.
What happens if my partner dies while receiving deferred pension?
If eligible, you may inherit extra weekly payments depending on when your partner reached pension age and your relationship status.
Are pension deferral benefits lost when living outside the UK?
Not always. However, in some countries, deferred pension increases do not apply or stop adjusting annually.
How does deferred pension affect Winter Fuel Payment?
You must apply separately for the Winter Fuel Payment if you’ve deferred your State Pension. It will not be issued automatically.
What happens if I defer and then go into a care home?
Your deferred pension may be considered in financial assessments for care costs, potentially affecting your contribution amounts.
Do time periods in prison affect deferred pension entitlement?
Yes, any time spent in prison does not count towards your qualifying weeks for pension increase through deferral.
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