Your State Pension Choice Pension now or extra pension later: A guide to State Pension Deferral

Introduction About this guide When you are coming up to State Pension age, you need to decide when you want to start drawing your State Pension. You can decide to claim it from State Pension age but you can also choose to delay claiming it for a while. If you are thinking about putting off claiming your State Pension this guide contains important information you should consider before you make your decision. The Pensions Act 2004 introduced a new choice for people who put off claiming their State Pension and made important changes to the existing rules. These changes mean that people will be able to choose either a higher weekly pension or a one-off taxable lump sum payment when they do finally claim, if they meet the conditions explained in this guide. And they will be able to put off claiming their pension for as long as they wish to earn a higher pension or a lump sum payment. These changes take effect from 6 April 2005. If you have already claimed your State Pension you may still be able to take advantage of these changes by giving up your State Pension temporarily. So if you want to know more about this option, this guide is also for you. The first part of the guide starting on page 9 provides a short summary of the choices you will have from April 2005. If, after reading this, you think putting off your State Pension might be an option for you, you should then go on to read the other parts of the guide which explain these changes in more detail. Not all the information in this guide will be relevant to you the contents page will help you find the information you need. 2

The Pension Service can give you information about the choices available to you but we cannot give you financial advice or tell you what we think is the best choice for you. Before you make a decision about what to do, it is a good idea to discuss it with your friends and family, with an independent financial adviser or with organisations which provide information and advice for pensioners. (If you are thinking about getting independent financial advice, don t forget that you may have to pay for this.) Terms used in this guide Throughout this guide, we ve used the term extra State Pension to refer to the increase to your State Pension you could get if you put off claiming your State Pension. In other guides, you may see this described as increments. We have also used the expression putting off claiming your State Pension this is also known as deferring your State Pension. A lump sum payment means a payment of deferred pension plus interest, as defined in the Pensions Act. More general information about the State Pension scheme is found in the leaflets listed on page 58. However, to help you follow what s in this guide there is a short explanation of the main features of the scheme and definitions of State Pension terms, starting on page 49. Great Britain means England, Scotland and Wales. United Kingdom means Great Britain and Northern Ireland (but not the Isle of Man and the Channel Islands). Other technical or benefit terms are explained at the point they appear in the text. 3

This guide and the law This guide has no status in law. While it explains the rules that will apply to the majority of situations, it does not cover all the rules for every situation, and it should not be treated as a complete and authoritative statement of the law. Some of the information in this guide, including the information on tax arrangements for the lump sum payment, is based on rules which have not yet been approved by Parliament. People who live in Northern Ireland This leaflet has been published for Great Britain so some information will not apply in Northern Ireland. If you live in Northern Ireland, you can get the Northern Ireland version of this leaflet by telephoning The Social Security Agency on 02890 549 393. 4

Contents Introduction 2 What this guide is about, a note about terms used in this guide and the legal status of the information contained in it. What choices do I have when I reach State Pension age? 9 An introduction to your options before 6 April 2005 and the changes that will apply from 6 April 2005 if you put off claiming your State Pension. How much extra State Pension or lump sum payment could I get? A quick reference table illustrating how much you could get if you put off claiming your State Pension from 6 April 2005. How extra State Pension and the lump sum payment are worked out 18 This section explains: how extra State Pension is worked out and how long you have to put off claiming your State Pension to get extra State Pension how the lump sum payment is worked out, how we add interest and how long you have to put off claiming your State Pension to get a lump sum payment. When putting off your State Pension will not earn extra State Pension or a lump sum payment This explains that in some circumstances, which include getting certain benefits while you are putting off claiming your State Pension, you cannot earn extra State Pension or a lump sum payment. What counts as weekly pension for calculating extra State Pension and lump sum payments The State Pension is made up of different components. This part of the guide explains which of these are included when we work out extra State Pension and the lump sum payment. 5

How extra State Pension and lump sum payments are treated for Income Tax 24 This section explains how extra State Pension is taxed and how the lump sum payment will be taxed. How extra State Pension and lump sum payments are treated in Pension Credit, Housing Benefit and Council Tax Benefit 27 This section explains how getting extra State Pension or a lump sum payment will affect your entitlement to these other benefits and what happens if you are claiming Pension Credit while you are putting off your State Pension. Your circumstances 29 This section contains information that explains how particular circumstances could affect extra State Pension or a lump sum payment What happens to your extra State Pension or lump sum payment when you die? If you are a widow What you may get if your husband had put off claiming his State Pension before he died. If you are a widower What you may get if your wife had put off claiming her State Pension before she died. How inherited extra State Pension or a lump sum payment is treated if you put off claiming your State Pension What happens if you are entitled to extra State Pension or a lump sum payment from your late husband or wife and you put off claiming your own State Pension. If you are married How putting off your State Pension may affect your wife s pension, how 6

you can earn extra State Pension or a lump sum payment if all or part of your pension is based on your husband s National Insurance contributions, and how marrying again may affect what you could inherit from your late husband or wife. If you get divorced How your State Pension may be affected if you divorce while putting off your claim and how you can earn extra pension or a lump sum payment by putting off your Shared Additional Pension. If you go into hospital How your extra State Pension or lump sum payment may be affected if you go into hospital If you normally live outside Great Britain How extra State Pension or a lump sum payment is worked out if you do not normally live in Great Britain, and how tax will be applied. If you reached State Pension age before 6 April 2005 How you may be able to earn extra State Pension at the new, higher rate, or a lump sum payment, if you reached State Pension age before 6 April 2005. How do I choose the best option for me? 42 A summary of what you should consider before deciding what to do. What do I need to do to put off claiming my State Pension? 46 What you need to do if you are coming up to State Pension age and you don t want to claim your State Pension straightaway, or if you have already claimed your State Pension but you want to stop claiming it for a while. What do I need to do to choose between extra State Pension and a lump sum payment? 46 This section explains when you need to make your choice, and what happens if you either can t decide or you want to change your mind. 7

State Pensions explained 49 A short summary of the main features of the State Pension scheme. Where can I find further information? 57 This section gives details of website addresses and other leaflets and guides about pensions. 8

What choices do I have when I reach State Pension age? Your choices before 6 April 2005 When you reach State Pension age (this is explained on page 54) you don t have to claim your State Pension straight away. In fact, you have a number of choices. You can: retire and claim your State Pension claim your State Pension and continue working (full or part-time) or put off claiming your State Pension for a while to earn extra State Pension when you do claim, whether you are still working or not. Earning extra State Pension People have always been able to earn extra State Pension, either by putting off claiming their State Pension when they reach State Pension age, or by deciding to stop claiming it for a while. You get this extra State Pension on top of your normal weekly State Pension when you do eventually claim. It is normally paid for as long as you carry on claiming your State Pension and will be increased each year when your State Pension increases, if the annual increase also applies to your State Pension. Before 6 April 2005: You can only build up extra State Pension for a maximum of five years after you reach State Pension age. You earn 1% extra for every seven weeks you put off claiming (this works out at about 7.5% extra State Pension for every full year you put off claiming your State Pension). 9

Your choices from 6 April 2005 Now that more people are living longer, healthier lives, it makes sense to make it easier for people to choose to work after State Pension age. So changes are being introduced from April 2005 so that people who want to continue working after they reach State Pension age have more incentive to do so. From 6 April 2005, there will be more choice open to you. You will still be able to retire and claim your State Pension when you reach State Pension age; or claim your State Pension and carry on working, or put off claiming your State Pension (whether you are working or not). But the new rules will give you more extra State Pension for the time you put off claiming your State Pension, and a new choice of how to take the extra money. From 6 April 2005, if you put off claiming your State Pension, you can choose one of the following options when you do claim: Either Extra State Pension: You can earn extra State Pension worked out at 1% of your weekly pension for every five weeks you put off claiming (this is equivalent to 10.4% extra for every year you delay claiming, compared to about 7.5% extra before 6 April 2005). So if you put off claiming for a year, you d get about 1 extra for every 10 of your weekly pension. You must put off claiming your State Pension for at least five weeks to get extra State Pension. If you choose extra State Pension you will not be paid State Pension for the weeks you delayed claiming it because you will be getting a higher weekly State Pension instead. 10

Or Check in the table starting on page 13 to see how much extra State Pension you could earn. A lump sum payment: A one-off taxable lump sum payment based on the amount of State Pension you would have received in the period you have put off claiming, plus interest added each week and compounded. You also get your weekly State Pension when you claim it, paid at the normal rate. You have to put off claiming your State Pension for at least 12 consecutive months (which must all be after 5 April 2005) to have the choice of a lump sum payment. Check in the table starting on page 13 to see how much you could get as a lump sum payment. How much extra State Pension or lump sum payment could I get? The table below gives a guide to how much you could get either as extra State Pension or a lump sum payment if you put off claiming your State Pension from April 2005. We ve shown amounts you could get from putting off claiming your State Pension for up to five years, but from April 2005 you can put off claiming your State Pension for as long as you like to earn more extra State Pension or a bigger lump sum payment. The lump sum payment is a one-off payment on top of the weekly State Pension, paid at the normal rate, which you will get from the date you start claiming your State Pension. Extra State Pension is an increase to your normal weekly State Pension that will be paid with your pension from the date you start claiming it and continues for life, subject to the normal rules on payment of State Pensions. So the table also shows how much the extra State Pension paid each week could add up to, over time. 11

These figures are only an illustration to help you choose which option might be best for you. You need to remember that: the amounts of State Pension are based on today s prices this means that they give an indication of what the extra State Pension or lump sum payment could be worth if you got the payments today. you may have to pay tax on the lump sum payment or extra State Pension (the tax rules are explained on pages 25 and 26). The amounts in the table are shown without any tax taken off as the amount of tax you have to pay will depend on how much other income (such as income from earnings or a pension from your job) you have. the lump sum payment amounts are based on an interest rate of 6.75% for the whole period the State Pension claim is put off, but in reality the interest rate could change (this is explained in more detail in the next section How we work out extra State Pension and the lump sum payment ). the amount of payment you could get may be less than the table shows if certain conditions apply you should check to see if any of these conditions apply to you in the next section How extra State Pension and the lump sum payment are worked out. 12

Your Years Lump Extra State How much your extra State you put sum Pension you State Pension could Pension off payment could earn add up to over time claiming you when it s paid each your could week State earn Each Each Pension Each Each In 5 In 10 In 15 week year week year years years years 50 2,600 1 2,688 5.20 270 1,352 2,704 4,056 2 5,558 10.40 541 2,704 5,408 8,112 3 8,622 15.60 811 4,056 8,112 12,168 4 11,893 20.80 1,082 5,408 10,816 16,224 5 15,384 26.00 1,352 6,760 13,520 20,280 60 3,120 1 3,226 6.24 324 1,622 3,245 4,867 2 6,670 12.48 649 3,245 6,490 9,734 3 10,347 18.72 973 4,867 9,734 14,602 4 14,271 24.96 1,298 6,490 12,979 19,469 5 18,461 31.20 1,622 8,112 16,224 24,336 70 3,640 1 3,764 7.28 379 1,893 3,786 5,678 2 7,782 14.56 757 3,786 7,571 11,357 3 12,071 21.84 1,136 5,678 11,357 17,035 4 16,650 29.12 1,514 7,571 15,142 22,714 5 21,537 36.40 1,893 9,464 18,928 28,392 80 4,160 1 4,302 8.32 433 2,163 4,326 6,490 2 8,894 16.64 865 4,326 8,653 12,979 3 13,795 24.96 1,298 6,490 12,979 19,469 4 19,028 33.28 1,731 8,653 17,306 25,958 5 24,614 41.60 2,163 10,816 21,632 32,448 90 4,680 1 4,839 9.36 487 2,434 4,867 7,301 2 10,005 18.72 973 4,867 9,734 14,602 3 15,520 28.08 1,460 7,301 14,602 21,902 4 21,407 37.44 1,947 9,734 19,469 29,203 5 27,691 46.80 2,434 12,168 24,336 36,504 13

Your Years Lump Extra State How much your extra State you put sum Pension you State Pension could Pension off payment could earn add up to over time claiming you when it s paid each your could week State earn Each Each Pension Each Each In 5 In 10 In 15 week year week year years years years 100 5,200 1 5,377 10.40 541 2,704 5,408 8,112 2 11,117 20.80 1,082 5,408 10,816 16,224 3 17,244 31.20 1,622 8,112 16,224 24,336 4 23,785 41.60 2,163 10,816 21,632 32,448 5 30,768 52.00 2,704 13,520 27,040 40,560 110 5,720 1 5,915 11.44 595 2,974 5,949 8,923 2 12,229 22.88 1,190 5,949 11,898 17,846 3 18,969 34.32 1,785 8,923 17,846 26,770 4 26,164 45.76 2,380 11,898 23,795 35,693 5 33,844 57.20 2,974 14,872 29,744 44,616 120 6,240 1 6,452 12.48 649 3,245 6,490 9,734 2 13,340 24.96 1,298 6,490 12,979 19,469 3 20,693 37.44 1,947 9,734 19,469 29,203 4 28,542 49.92 2,596 12,979 25,958 38,938 5 36,921 62.40 3,245 16,224 32,448 48,672 130 6,760 1 6,990 13.52 703 3,515 7,030 10,546 2 14,452 27.04 1,406 7,030 14,061 21,091 3 22,417 40.56 2,109 10,546 21,091 31,637 4 30,921 54.08 2,812 14,061 28,122 42,182 5 39,998 67.60 3,515 17,576 35,152 52,728 140 7,280 1 7,528 14.56 757 3,786 7,571 11,357 2 15,564 29.12 1,514 7,571 15,142 22,714 3 24,142 43.68 2,271 11,357 22,714 34,070 4 33,299 58.24 3,028 15,142 30,285 45,427 5 43,075 72.80 3,786 18,928 37,856 56,784 14

What else is changing from April 2005? Time limits for earning extra State Pension or a lump sum payment The maximum limit of five years for earning extra State Pension will be removed. This means that from 6 April 2005 you will continue to earn more extra State Pension or a lump sum payment however long you put off claiming your State Pension. Backdating your State Pension We can normally pay you your State Pension from a date before the date on which we receive your claim if you would have been entitled to your State Pension from that earlier date. This is called backdating. There is a maximum period that we can backdate your claim for. The backdating rule is changing so that you will be able to backdate your State Pension for longer. If you claim your State Pension on or before 6 July 2005, it may be backdated for up to three months. If you claim on or after 7 July 2005 but on or before 5 April 2006, your State Pension may be backdated to 6 April 2005. If you claim on or after 6 April 2006, your State Pension may be backdated for up to 12 months. Your claim cannot be backdated for any period before the date you would have first become entitled to your State Pension. The new backdating rules will apply to all parts of the State Pension except increases payable with the State Pension for a dependent adult (see the section State Pensions explained starting on page 49 for more about dependency increases). The maximum period for backdating dependency increases will remain at three months. 16

If you put off claiming your State Pension for less than 12 consecutive months you will not have the choice of a lump sum payment. But with the change in the backdating rules you will be able to get up to 12 months arrears of State Pension paid to you as a one-off cash payment by asking us to backdate the start of your claim, if you want this instead of extra State Pension. Remember that a payment of backdated State Pension is just a back payment of your normal weekly State Pension so it will not include any interest. Who can benefit from the changes? These changes don t only apply to people who reach State Pension age on or after 6 April 2005. If you are already putting off your State Pension at 6 April 2005, you could get a combination of extra State Pension under the old rules for the period up to 6 April 2005, and for the period after that date you could get either extra State Pension at the new rate or a lump sum payment. In fact, even if you have already claimed your State Pension, you may still be able to stop claiming it to earn extra State Pension or a lump sum payment. How you can benefit if you ve already reached State Pension age before 6 April 2005 is explained in more detail in the section starting on page 40. This section provides only a summary of the changes that apply from April 2005. If you are interested in putting off your State Pension claim, the rest of this guide explains these changes in more detail and contains important information which will help you decide what to do. 17

How extra State Pension and the lump sum payment are worked out Extra State Pension To work out extra State Pension, we take the weekly State Pension you have put off claiming and multiply a percentage of the weekly amount by the number of weeks you have put off your claim. ( Weekly State Pension is explained on page 21.) From April 2005, the percentage is one-fifth of 1% for each week this works out at 1% for every five weeks, and about 10.4% for a full year. The rate of weekly pension we use to work out extra State Pension is the rate that applies at the time you start claiming your pension so it takes account of any annual changes to the pension rates that have occurred while you are putting off your claim. For example, if you put off claiming weekly State Pension for 78 weeks (about 18 months) and the rate at the time you claim is 90 you would get: 1 5% x 90 = 0.18 x 78 = an extra 14.04 added to your 90 weekly State Pension, giving you a total State Pension of 104.04 per week. Your extra State Pension will then be increased each year when your normal State Pension increases. For any period before 6 April 2005, the amount of extra State Pension is worked out in exactly the same way but the percentage rate is one-seventh of 1% for each week which works out at 1% for every 7 weeks and approximately 7.5% for a full year. We cannot normally pay you extra State Pension if the amount would come to less than 1% of your weekly State Pension. So this means that from April 2005, you need to have at least five qualifying weeks to get extra State Pension (before April 2005 you need to have at least seven qualifying weeks). 18

You will not be paid your State Pension for the weeks you put off claiming, but if you choose extra State Pension you will get a higher amount of State Pension for life, from when you do finally claim. In certain circumstances you will not earn any extra State Pension for weeks you put off claiming your State Pension this is explained on pages 20 and 21, below. Lump sum payments The lump sum payment is made up of the weekly State Pension you have put off claiming, at the rate that applies in each week you are putting off your claim, plus interest. (see below for what we mean by weekly State Pension ). How we add interest Interest will be added each week to the amount of State Pension you have put off claiming in that week. The interest will be compounded. This means that you will earn interest on the interest added on each week, as well as on the amount of weekly State Pension. The rate of weekly pension will be increased when the rates normally change each year. For example, if your weekly State Pension would have been 105 when you started putting off your claim and it then changed to 108 a week in the following April, interest would be applied to 105 a week up to April and then to 108 a week. The interest we add each week will be equivalent to an annual rate of interest of 2% above the Bank of England s base rate (so if the base rate was 5%, the annual equivalent interest rate would be 7%). The rate of interest will be adjusted in line with changes in the base rate which is reviewed every month on the Thursday after the first Monday in the month, so it may go down as well as up. 19

How long do I need to put off claiming my State Pension to get a lump sum payment? You need to put off claiming your State Pension for at least 12 consecutive months (starting on any date in the month) to have the choice of a lump sum payment. So, for example, if you reached State Pension age on 1 August 2005, you d have to put off claiming until at least 1 August 2006 to be able to choose a lump sum payment. Because the new rules do not apply until 6 April 2005, you cannot start to build up a lump sum payment before that date. If you start to put off claiming your State Pension before 6 April 2005, the period up until then will be used to earn extra State Pension instead and you must continue to put off claiming your State Pension for 12 consecutive months from that date before you can get a lump sum payment. (See the section starting on page 40 for more details on this situation.) In certain circumstances you will not earn any lump sum payment for weeks you put off claiming your State Pension this is explained below. When putting off your State Pension will not earn extra State Pension or a lump sum payment The State Pension you put off claiming will count for extra State Pension or a lump sum payment except for any days for which: you would not have been entitled to your State Pension, if you had been claiming it; you have received any of the following benefits while putting off claiming your State Pension: Carer s Allowance Incapacity Benefit State Pension of any category (this does not include Shared Additional Pension) 20

Severe Disablement Allowance Unemployability Supplement Widow s Pension Widowed Mother s Allowance another person has received an increase in any of these benefits for you (this does not apply if you are not living with the person getting the increase, unless that person is your husband or wife) you were in prison and because of this you would have been disqualified from getting your State Pension if you had been claiming it. If you are getting one or more of these benefits and you want to earn extra State Pension by putting off claiming your State Pension, you will need to tell us that you want us to stop paying you these other benefits. But before you do this you need to think carefully about the effect this will have on your financial position. (Note that Widowed Parent s Allowance and Bereavement Allowance stop when you reach State Pension age. These benefits replaced Widow s Pension and Widowed Mother s Allowance for people widowed after 9 April 2001. But if you are still entitled to Widow s Pension or Widowed Mother s Allowance these may continue in payment past State Pension age.) What counts as weekly State Pension for calculating extra State Pension or a lump sum payment? Weekly State Pension means all of your Category A or Category B State Pension, including basic State Pension additional, earnings-related State Pension (SERPS or State Second Pension) Graduated Retirement Benefit any Invalidity Addition payable with your State Pension (you may get this if you were getting an Incapacity Benefit age addition just before you reached State Pension age) 21

extra State Pension you have inherited from a husband or wife who has died (more information about extra State Pension or a lump sum payment you can inherit from a late husband or wife is in the section starting on page 29). It does not include increases to your State Pension for other people such as your wife or husband or another adult who is looking after your children (these are called dependency increases see below for more information) Christmas bonus. You cannot put off claiming only part of your State Pension to earn extra State Pension or a lump sum payment for example, you cannot claim your basic State Pension and put off claiming your additional State Pension. (There s more information about the State Pension and what these different terms mean in the section State Pensions explained, starting on page 49.) Will I have to give up my Winter Fuel Payment? No. The Winter Fuel Payment is normally paid to most people over the age of 60 and living in the United Kingdom. This is not connected to your State Pension, so you will get it even if you are not claiming your State Pension. 22

More about dependency increases A dependency increase is an additional amount for your husband or wife, or for someone looking after a child or children that you claim Child Benefit for, which can be paid with the State Pension, and certain other benefits. You can normally only get this increase if the other person is not getting a State Pension or another state benefit of their own, or has no earnings or has earnings below a specified amount. A dependency increase is not paid automatically with your State Pension or other benefit you have to make a claim for it. But it cannot be paid on its own. If you could be entitled to a dependency increase with your State Pension, you need to think carefully about whether you want to put off claiming your State Pension. This is because you will not get any extra State Pension or lump sum payment for the dependency increase if you put off claiming your State Pension. Although you will still get extra State Pension or a lump sum payment for putting off claiming your State Pension, this will not normally make up for the dependency increase you have given up. If the person you could claim a dependency increase for is getting State Pension or another benefit this will normally reduce the amount of dependency increase you could claim. And if they have earnings above a certain amount, you won t get any dependency increase for them. But if they were over State Pension age and wanted to put off their State Pension they would not get any extra State Pension or lump sum payment for any period you received a dependency increase for them. (This does not apply if they do not live with you, unless they are married to you.) Shared Additional Pension You may be entitled to a Shared Additional Pension because of a divorce settlement. Shared Additional Pension is separate from your normal State Pension. See page 38 for more information about this. 23

How extra State Pension and the lump sum payment are treated for Income Tax The State Pension is counted as taxable income by the Inland Revenue. You will only pay tax on your State Pension if it comes to more than your personal tax allowance (the amount of income you are allowed to have before you have to start paying tax). Normally, any tax due on the State Pension is collected by deductions from your other income such as a pension from your employer. If you are aged 65 or over you will have a higher personal tax allowance. This is reduced by 1 for every 2 of income you have above a certain limit (in the 2005/06 tax year this limit is 19,500) but your tax allowance cannot be reduced to less than the tax allowance for a person under 65. Income is taxed at different rates depending on how much income you have left after you have deducted your personal tax allowance. For most types of income: the first 2,090 of income above your personal allowance is taxed at the starting rate of 10% income of over 2,090 up to 32,400 above your personal allowance is taxed at the basic rate of 22% income of over 32,400 above your personal allowance is taxed at the higher rate of 40%. (These rates apply in the tax year 6 April 2005 to 5 April 2006.) Extra State Pension and tax Extra State Pension is taxable in the same way as your normal State Pension. This means it will count as part of your income for tax purposes and you will pay tax if your total income is above your personal tax allowance. 24

Tax on your lump sum payment Important Note: the tax rules for the lump sum explained here are only proposals at this stage and must be approved by Parliament before they become law. This means that they could change before they become law. Lump sum payments are also taxable. But if the Government s proposals on tax become law, a lump sum payment will not be added to the rest of your income to work out your total income for tax. Instead, the rate of tax due on your lump sum payment will be the highest rate of tax that you pay on your other income (ignoring any of the special rates of tax that apply to any savings or dividends you might receive). This means that the lump sum payment will not put you into a higher tax bracket than that which applies to your other income. And it will not affect your entitlement to the agerelated Personal Tax allowances. ( Other income will also include any normal weekly State Pension paid to you in the tax year, once you have started to claim it.) Using the 2005/2006 tax rates as an illustration, what this would mean is that: If you pay no tax because your other income is less than your personal allowance you will pay no tax on your lump sum. If all your taxable income is taxed at the lower rate (10%), that will be the rate for your lump sum payment too. If you pay basic rate tax (22%), your lump sum payment will be taxed at 22%. If you pay higher rate tax (40%), you will pay 40% tax on your lump sum payment. For example, if you would be entitled to a lump sum payment of 13,000 before tax, and the highest rate of tax you pay on your other income is 22%, the lump sum payment you will get is 10,140 after deducting tax at 22% ( 2,860). 25

Choosing when you want to be paid your lump sum payment You can ask us to pay you your lump sum payment in the tax year after your State Pension starts. You might want to do this if your income in the next year might be lower, for example because you are no longer working. If this means that you would pay tax on your other income at a lower rate in that tax year for example, at 10% instead of 22% you would then pay tax on your lump sum payment at 10% as well. However, it is entirely up to you whether you choose to delay your lump sum payment in this way. You will not build up any extra interest on your lump sum payment for any period you ask us to hold back the payment for you. How tax will be taken off your lump sum payment The Pension Service will pay you your lump sum payment after deducting tax. If you choose a lump sum payment, we will ask you to fill in a simple declaration so we know what amount of tax to take off. This will be based on what you estimate your income is going to be for the tax year you want the lump sum to be paid. There will be information supplied with the declaration form to help you decide what counts as income. And your tax office will also be able to help you, or you can look up Inland Revenue in the phone book to find your nearest Inland Revenue Enquiry Centre, or you can visit the Inland Revenue s web-site www.inlandrevenue.uk/menus/contactus. Inland Revenue will check the tax we have deducted at the end of the tax year, so they can repay any amount if you have paid too much tax or ask you to make up the difference if you have paid too little. You may have paid too little because your circumstances changed since you told us what rate of tax to apply for example, you might have taken a part-time job and the extra income may mean you pay tax at a higher rate. 26

How extra State Pension and the lump sum payment are treated in Pension Credit, Housing Benefit and Council Tax Benefit Extra State Pension Extra State Pension will be treated in the same way as any other retirement income when these benefits are worked out. This means it will be taken into account in deciding how much benefit you get. Pension Credit can include extra money for people aged 65 and over (or who have a partner aged 65 and over) who have qualifying income above what is known as the savings credit starting point. This starting point is currently set at the same level as basic State Pension. Extra State Pension will count as qualifying income when we work out this extra money. Lump sum payments If you have savings above a set amount, this normally affects the amount of Pension Credit, Housing Benefit and Council Tax Benefit you can get. However, if you choose a lump sum, we will completely ignore that amount of your savings when we work out these benefits. This means that these benefits will not be reduced because you have received a lump sum payment. This amount will always be ignored, whatever you decide to do with your lump sum. For example, if your lump sum payment is 15,000 we ll always ignore 15,000 of your savings, even if you spend some or all of it. This will still apply if you stop getting any of these benefits for a while and then decide to claim them again. 27

What if I claim Pension Credit while I am putting off claiming my State Pension? Pension Credit is based on your income and other circumstances. When we look at how much income you have, we include any pensions you could have if you applied for them. Pension Credit cannot be paid instead of other income you have chosen not to take. This means that if you claim Pension Credit while you are putting off your claim for State Pension it will be worked out as if you were getting your State Pension (but you can still build up extra State Pension or a lump sum). 28

Your circumstances This section of the guide contains information that explains how putting off claiming your State Pension and taking either extra State Pension or a lump sum payment will be treated in different circumstances. Although there s a lot of information included in this section, not all of it will apply to you so you won t need to read it all. But, as with any decision you make about personal financial matters, it s important to be aware of how different options could be affected by your personal circumstances now, or in the future. What happens to your extra State Pension or lump sum payment when you die? This will depend on whether you are married and whether you die before or after you have claimed your State Pension. If you are married Your widow or widower may be entitled to extra State Pension or a lump sum payment because you had put off claiming your State Pension this is explained in If you are a widow or If you are a widower, below. If you are not married If you have put off claiming your State Pension and your death occurs before you claim it, a person may be appointed to act on behalf of your estate. They may be able to claim up to three months arrears of State Pension this could also include any extra State Pension you had earned before that. However, they will not be able to claim a lump sum payment on behalf of your estate. If you die after claiming your State Pension and you had chosen extra State Pension this will stop at your death, because it is an increase to your normal State Pension. If you chose a lump sum payment, any amount which you have left will form part of your estate. 29

If you should die between making your claim for State Pension and informing The Pension Service of your choice of either extra State Pension or a lump sum payment, a person may be appointed to act for you to complete your claim and carry out this choice on behalf of your estate. And if you have already chosen a lump sum payment but it had not yet been paid to you before you died, it may be paid to your estate. If you are a widow If your husband had put off claiming his State Pension before he died, you may be entitled to extra State Pension or a lump sum payment for the period he had put off his claim, if: you were married to him on the date he died; and you have claimed your State Pension; and you do not marry again before you reach State Pension age. (Your entitlement to extra State Pension or a lump sum payment from your late husband is not affected if you remarry after you reach State Pension age.) Any extra State Pension or lump sum payment you may get from your husband is in addition to any extra State Pension or lump sum payment you may have earned through putting off your own State Pension claim. If you were widowed before your husband claimed his State Pension If your husband died before he had claimed his State Pension and he had put off his State Pension claim for at least 12 months before his death, you will be able to choose either extra State Pension or a lump sum payment for the period he had put off claiming. (There is more information about how to make your choice starting at page 42.) If he had put off claiming his State Pension for less than 12 months but for at least five qualifying weeks before he died, you will still be able to get extra State Pension. 30

If you were widowed after your husband claimed his State Pension If your husband died after he had claimed his State Pension, what you could get will depend on what choice he made. If he had chosen extra State Pension, you will be entitled to extra State Pension paid as an increase to your State Pension when you claim it. This will also apply if he was getting extra State Pension because he had not put off his claim for long enough to be able to choose a lump sum payment. If he had chosen a lump sum payment, and this had been paid to him before he died, it will form part of his estate in the normal way. If he had chosen a lump sum payment but was still waiting for the payment to be made to him when he died, it may be paid to his estate. You will not be able to change the choice made by your husband. If he died after claiming his State Pension but before he had made his choice, a person may be appointed to make this choice on behalf of his estate. This could be your husband s executor, or another suitable person, including yourself. What you could get will depend on the choice made by the representative in exactly the same way as if your husband had made the choice himself before he died. If you are below State Pension age or you have not claimed your State Pension when your husband dies If you are below State Pension age, or if you have reached State Pension age but you have not yet claimed your State Pension, you will have to wait until you claim your own State Pension before you can receive extra State Pension or a lump sum payment for the period your husband had put off his State Pension claim.while you are waiting to claim your State Pension, we will increase the value of the extra State Pension or lump sum payment in April each year in line with the annual increase to the normal State Pension. 31

How much extra State Pension or lump sum payment will you inherit? The percentage of your husband s extra State Pension or lump sum payment you could receive depends on the make up of the State Pension he had put off claiming. The percentages you could inherit are: 100% of the extra State Pension or lump sum payment he earned on his basic State Pension 50% of the extra State Pension or lump sum payment he earned on his earnings-related State Second Pension 50% of the extra State Pension or lump sum payment he earned on his Graduated Retirement Benefit (but not any he may have received from a former wife) between 100% and 50% of the extra State Pension or lump sum payment he earned on his additional State Earnings Related Pension Scheme (SERPS) pension. If your husband died before 6 October 2002 (or he died later but he had reached State Pension age before that date) you may get all of your husband s extra State Pension or lump sum payment earned on his SERPS. Otherwise, the amount of inherited SERPS you will get will be as shown in the table on page 53. If your husband had put off claiming a Guaranteed Minimum Pension You may be entitled to receive one-half of any increase your husband had earned for putting off claiming his Guaranteed Minimum Pension. This will be paid by the occupational pension scheme provider. In addition, you may also get an increase to your State Pension if you would have been entitled to more than 50% of extra State Pension from your husband s SERPS pension if he had not contracted-out of the earnings-related part of the State Pension scheme. ( Guaranteed Minimum Pension is briefly explained on page 55). 32

Rules that will apply to widows from April 2010 From April 2010, when the State Pension rules for men and women begin to be equalised, a man may be entitled to a State Pension based on his wife s National Insurance contributions while she is still alive. From that date, if a man dies after putting off claiming his State Pension, his widow will still be able to inherit extra State Pension or a lump sum payment provided that the State Pension her husband had put off claiming was based on his own National Insurance contributions. She will not be able to inherit extra State Pension or a lump sum payment in respect of State Pension he had put off claiming that was based on her National Insurance contributions. If you are a widower If your wife had put off claiming her State Pension before she died, you may get extra State Pension or a lump sum payment for the period she put off her claim if: you were married to her on the date she died; and you were over State Pension age yourself when she died; and you have claimed your State Pension. If your wife died before she claimed her State Pension If your wife had delayed claiming her State Pension for at least 12 months before she died, you will have the choice of either extra State Pension or a lump sum payment, in addition to any extra State Pension or lump sum payment you may have earned yourself by putting off your State Pension claim. If she had put off her claim for less than 12 months but at least five qualifying weeks you will be entitled to extra State Pension. If your wife died after she claimed her State Pension If your wife died after she had claimed her State Pension, what you could get will depend on what choice she made. 33

If she had chosen extra State Pension, you will be entitled to extra State Pension paid as an increase to your State Pension. This will also apply if she was getting extra State Pension because she had not put off her claim for long enough to be able to choose a lump sum payment. If she had chosen a lump sum payment, and this had been paid to her before she died, it will form part of her assets in the normal way. If she had chosen a lump sum but was still waiting for the payment to be made to her when she died, it may be paid to her estate. You will not be able to change the choice made by your wife. If she died after claiming her State Pension but before she had made her choice, a person may be appointed to make this choice on behalf of her estate. This could be your wife s executor, or another suitable person, including yourself. What you could get will depend on what choice is made by the representative, in exactly the same way as if your wife had made the choice herself before she died. If you have not claimed your State Pension when your wife dies If you have reached State Pension age but you have not yet claimed your State Pension, you will have to wait until you claim your own State Pension before you can receive the extra State Pension or lump sum payment. While you are waiting to claim your State Pension, we will increase the value of the extra State Pension or lump sum payment in April each year in line with the annual increase to the normal State Pension. How much extra State Pension or lump sum payment will you inherit? The percentage of your wife s extra State Pension or lump sum payment you could receive depends on the make up of the State Pension she had put off claiming. The percentages you could inherit are: 100% of the extra State Pension or lump sum payment she earned on her basic State Pension 34

50% of the extra State Pension or lump sum payment she earned on her earnings-related State Second Pension 50% of the extra State Pension or lump sum payment she earned on her Graduated Retirement Benefit (but not any she may have received from a former husband) between 100% and 50% of the extra State Pension or lump sum payment she earned on her additional State Earnings Related Pension Scheme (SERPS) pension. If your wife died before 6 October 2002 (or she died later but she had reached State Pension age before that date) you may get all of your wife s extra State Pension or lump sum payment earned on her SERPS. Otherwise, the amount of inherited SERPS you will get will be as shown in the table on page 53. However, if any part of the State Pension that your wife had been putting off claiming was based on your National Insurance contributions, you will not be able to inherit extra State Pension or a lump sum payment from this part of her State Pension. Changes for widowers from April 2010 From April 2010, when the rules for State Pension for men and women begin to be equalised, it will no longer be a condition that a widower must be over State Pension age himself when his wife dies in order to be able to inherit extra State Pension or a lump sum payment. From that date, a man who becomes a widower while still under State Pension age will be able to get extra State Pension or a lump sum payment from his wife on the same basis as a widow can now. 35

How inherited extra State Pension or a lump sum payment is treated if you put off claiming your State Pension Extra State Pension If you get extra State Pension from your husband or wife, it is paid as an increase to your weekly State Pension. If you put off claiming your State Pension it will be counted as part of your State Pension when we work out the amount of extra State Pension or lump sum payment you have earned. However, if your State Pension includes an increase because your spouse had put off claiming a Guaranteed Minimum Pension, this part of your weekly State Pension will only earn extra State Pension. You will still be able to choose a lump sum payment for the rest of the State Pension you have put off claiming. Lump sum payment If your husband or wife died before claiming their pension and you have the choice of taking a lump sum payment for the period they put off their claim, you cannot make this choice until you claim your own State Pension. If you put off claiming your State Pension you will not build up any further interest on the lump sum payment you will inherit (but until the time you claim your State Pension, we will increase the value of the lump sum payment in April each year in line with the annual increase to the normal State Pension). If you are married If you are a married man, putting off claiming your State Pension may affect your wife s State Pension, depending on the type of State Pension she could be entitled to. If you are a married woman, you may be entitled to a State Pension, or to an increase to your State Pension, based on your husband s National Insurance contributions. This is called a Category B pension, and it may give you more State Pension than you could get based on your own contributions. 36

You can only claim a Category B pension when your husband claims his State Pension. So if he puts off claiming his State Pension, you will not be able to claim the Category B pension while he is putting off his claim. You will build up extra State Pension or a lump sum payment on your Category B pension while your husband is putting off his claim. If you are already getting a Category B pension and your husband decides to stop claiming his State Pension to earn extra State Pension or a lump sum payment, this will mean your Category B pension will also stop for the same period. Your husband can only put off claiming his State Pension in these circumstances if you agree. If you are entitled to a combination of a State Pension from your own contributions and a top-up from your husband s contributions, you must put off claiming both pensions in order to earn extra State Pension or a lump sum payment. If you were widowed and you remarried before you reached State Pension age If your husband had put off claiming his State Pension before he died, you will not be able to inherit extra State Pension or a lump sum payment from him if you marry again before you reach State Pension age yourself. If you remarry after reaching State Pension age, this does not affect what you may be able to inherit from your late husband. The rules on what you may be able to inherit if you are, or you were, a widow are explained in the section If you are a widow starting on page 30. (Until April 2010, if you are a man whose wife had been putting off her pension before she died, you will not be entitled to inherit extra State Pension or a lump sum from her unless you were already over State Pension age yourself when she died. Any entitlement is unaffected if you then remarry. See the section If you are a widower starting on page 33 for more information on what you may be able to inherit if you are, or you were, a widower.) 37

If you get divorced If you get divorced or your marriage is annulled, your ex-husband or ex-wife may be entitled to a share of your additional (earnings-related) State Pension. The share will be decided by the Courts, based on a valuation of your additional State Pension. If the divorce or annulment takes place while you are putting off claiming your State Pension, this valuation will include the value of any extra State Pension you earned up to the date of the divorce or annulment. Shared Additional Pension You may get a Shared Additional Pension from your ex-husband or ex-wife after a divorce, but only if a pension-sharing order has been made. The only part of State Pension which is covered by a pension-sharing order is the additional State Pension (also known as State Earnings-Related Pension (SERPS) or the State Second Pension). If you are entitled to a Shared Additional Pension, it will be payable from State Pension age unless the pension-sharing order takes effect after that date. You will normally claim it at the same time as you claim your State Pension. If you put off claiming your State Pension your Shared Additional Pension will normally be put off for the same period. You can earn extra Shared Additional Pension or, if you put off claiming for at least 12 consecutive months after 6 April 2005, you can earn a lump sum payment. Extra Shared Additional Pension and the lump sum are calculated in the same way as for the ordinary State Pension. If you marry again, the extra State Pension or lump sum payment you earn on your Shared Additional Pension cannot be inherited by your new husband or wife if you die before them. If you go into hospital Any period you spend in hospital while you are putting off claiming your State Pension will not affect how we work out your extra State Pension or a lump sum payment. 38

However, if you put off claiming your State Pension and you choose extra State Pension, this could be affected if you go into hospital. After 52 weeks in hospital, the weekly amount of State Pension, including any extra State Pension, is reduced to the hospital personal allowance rate. This is 15.90 a week (increasing to 16.40 from April 2005). If you choose a lump sum payment, this will not be affected by admission to hospital. If you normally live outside Great Britain If you are living abroad, you can put off claiming your State Pension when you reach State Pension age to earn extra State Pension or a lump sum payment. However, if you have already claimed your State Pension and you do not live in Great Britain you will not normally be able to choose to give up your State Pension to earn extra State Pension or a lump sum payment. You may have this option if you are residing in one of the countries listed below and are either a national of one of those countries or otherwise entitled to live there. This right comes from the European rules on coordinating social security. The relevant countries are: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Gibraltar, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Northern Ireland, Norway, Poland, Portugal, Republic of Ireland, Slovakia, Slovenia, Spain, Sweden and Switzerland. When we calculate how much extra State Pension or lump sum payment you have earned, we will calculate it in the same way as if you had been living in Great Britain. If you choose extra State Pension, it will form part of your weekly State Pension and so any restrictions on annual increases to the normal State Pension that apply because you live abroad will also apply to your extra State Pension. 39

Will I have to pay tax on my extra State Pension or lump sum payment? Any extra State Pension and lump sum payment will be liable for United Kingdom tax. The lump sum payment will be taxed using the same rules as for people who normally live in the United Kingdom. You will need to get in touch with the tax authority in the country where you live to see whether there are any other tax implications. (Note: the UK tax rules applying to the lump sum payment have not yet been agreed by Parliament.) For more information on your State Pension options if you live overseas, please see the living overseas section on The Pension Service website (www.thepensionservice.gov.uk), or you can phone the International Pension Centre on +44 191 2182828, or fax on +44 191 2183836. If you reached State Pension age before 6 April 2005 You may still be able to benefit from the changes that take effect from 6 April 2005 even if you reached State Pension age before then. If you are already getting your State Pension You can decide to stop claiming your State Pension from a date after 5 April 2005 to earn extra State Pension at the higher rate of about 10.4% per year, or to get a lump sum payment. You can only choose to stop claiming your State Pension once, so this will not be an option for you if you have previously stopped claiming it, and you must normally live in Great Britain (but see page 39 which explains when this rule may not apply). To get extra State Pension at the higher rate, you will need to stop claiming your State Pension for at least five qualifying weeks and to get a lump sum payment, you will need to stop claiming it for at least 12 consecutive months in the period starting on or after 6 April 2005. If you are not already getting your State Pension You may not be getting your State Pension either because you did not claim it when you reached State Pension age or you did claim it but later 40

decided to stop claiming it. If you continue to put off claiming it after 6 April 2005, when you do claim, you could get extra State Pension for the period before 6 April 2005, worked out using the rate that applied before that date (approximately 7.5% extra State Pension for every year you have put off claiming, or 1% for every seven qualifying weeks); plus, for the period from 6 April 2005, you could choose either a larger amount of extra State Pension based on the new, higher rate of about 1% for every five qualifying weeks (around 10.4% for every year) you put off claiming or a lump sum payment but to have this choice, you must put off claiming for 12 months (to at least 6 April 2006). What if I am already five years over State Pension age before 6 April 2005? Before 6 April 2005, you can normally only earn extra State Pension for up to 5 years after you reached State Pension age (so up to age 70 if you are a man, or 65 if you are a woman). If you have already reached that age before 6 April 2005 you will not be able to earn any more extra State Pension in the period between reaching that age and 6 April 2005 by putting off claiming your State Pension. If you have reached the five year limit before 6 April 2005 but you ve not claimed your State Pension, and you continue to put off claiming your State Pension, you will start earning extra State Pension again or a lump sum payment from 6 April 2005 onwards. But any period you had put off claiming your State Pension before 6 April 2005 will not count towards the lump sum payment. (If you have already claimed your State Pension before 6 April 2005 but you d like to earn extra State Pension or a lump sum payment, see the previous paragraph headed If you are already getting your State Pension which explains how you can do this.) The extra State Pension you earned before 6 April 2005 will be added to your normal State Pension only when you finally claim it. 41

How do I choose the best option for me? Your first decision is whether to claim your State Pension as soon as you reach State Pension age or whether you want to put off claiming it to get extra State Pension or a lump sum payment. Remember, you can claim your State Pension and continue working if you want to and your earnings will not affect your State Pension (although taking your State Pension while you are earning may mean you may pay more tax than if you put off claiming your State Pension your tax office will be able to give you advice on your tax position). If you are considering putting off your claim for State Pension, one of the important things to consider is what this would mean if you died before you claimed your State Pension (pages 29 to 37 explain this). You should also check whether you are receiving any of the benefits that would stop you building up extra State Pension or a lump sum payment (see pages 20 to 21). Once you ve decided to put off claiming your State Pension, you need to consider which choice you ll want to make when you finally decide to claim. The key difference between extra State Pension and a lump sum payment is that the extra State Pension will be a permanent part of your State Pension whereas the lump sum payment is a one-off taxable payment. If you choose extra State Pension you normally get a higher weekly State Pension for life, starting from when you do finally claim your husband or wife may be entitled to extra State Pension if you die it will be treated like any other retirement income in Pension Credit, Housing Benefit and Council Tax Benefit it counts as taxable income in the same way as your normal weekly State Pension. From 6 April 2005, you have to put off your State Pension for at least five weeks to get extra State Pension. 42

If you choose a lump sum payment you get your payment for putting off claiming your State Pension all in one go, and your weekly State Pension paid at the normal rate your husband or wife may inherit a lump sum payment if you die before you claim your State Pension it may only form part of your estate if you die after you have claimed your State Pension it will be ignored if you claim Pension Credit, Housing Benefit or Council Tax Benefit If Parliament agrees, it will be taxed under special rules that will ensure you won t pay a higher rate of tax on your lump sum payment than you will pay on the other income you receive in the tax year you get your lump sum payment (this can be either the tax year in which you claim your State Pension or if you wish, the tax year following). You have to put off your State Pension for at least 12 months to get a lump sum payment (not including any period you put off your claim before 6 April 2005). Some further questions answered: Which will give me more extra State Pension or a lump sum payment? Because extra State Pension is paid each week with your State Pension when you do finally claim, the total amount of the weekly payments of extra State Pension could, over several years, eventually add up to more than a lump sum payment. The table starting on page 13 gives a very approximate indication of this but the precise point in time at which the total amount of your extra State Pension adds up to more than the lump sum payment will depend on several different factors, including how long you had put off claiming your State Pension for, and the interest rate applied to the lump sum (which will affect how much lump sum payment you could get). As explained above, when you compare extra State Pension 43

to the lump sum payment, you should also take account of how each type of payment is treated in other benefits, and how it is taxed. If I am married can I make a different choice from my husband or wife? Yes. If you are married and both you and your husband or wife have put off claiming your State Pensions, you do not have to make the same choice as each other. So one of you could choose a lump sum payment and the other could choose extra State Pension. This applies even if the State Pension you have put off claiming is a Category B pension based on your husband s National Insurance contributions. Can I choose a combination of extra State Pension and lump sum payment? No. You will have to choose one or the other when you eventually claim your State Pension. However, if you were already putting off claiming your State Pension before 6 April 2005 you may be entitled to a combination of extra State Pension for the period up to 6 April 2005, and either extra State Pension or a lump sum for the period starting on 6 April 2005. (See page 40 to find out how this would work.) What happens to my extra State Pension or lump sum payment if I want to backdate my State Pension claim? Extra State Pension and the lump sum payment are worked out over the period you have put off claiming your State Pension. So if you ask for your State Pension claim to start from an earlier date, this reduces the length of time you have put off your claim. This means you will get less extra State Pension or lump sum payment. For example, if you have put off your State Pension for 20 months and you backdate your claim for the maximum period of 12 months, you will get pension arrears (without interest added) for 12 months, and you will get 44

extra State Pension worked out for the remaining eight months. You will not be able to choose a lump sum payment for the period before the start of your backdated claim, because you need to have put off the start of your State Pension claim for at least 12 months to have this option. However, using the same example, if you backdated the start of your State Pension claim for eight months, you would still have the choice of extra State Pension or a lump sum payment for the 12 months you had left. Will I get the same if I ask for backdating instead of a lump sum payment? If you want a one-off cash payment you will normally get more if you choose a lump sum payment because you will get interest on the lump sum and you might pay less tax (depending on your circumstances). However, this may not be the case if the State Pension you have put off claiming could have included a dependency increase (see page 23). This is because the dependency increase you have put off claiming will not be included in your lump sum payment. We can backdate a dependency increase for a maximum of three months. (This will continue to apply when the rules on backdating State Pension change to allow for a longer period see page 16.) So, if you have put off claiming your State Pension and you could have been entitled to a dependency increase, you may get a bigger cash sum if you ask us to backdate your pension for three months and then choose a lump sum payment for the rest of the period. As explained above, you will not be able to choose a lump sum if there are fewer than 12 months left after backdating the start of your claim, so you would need to have put off claiming your State Pension for a total of 15 months to be able to do this. You will need to consider how claiming arrears of dependency increase might affect any State Pension for the person you are getting the dependency increase for (see page 23). 45

What do I need to do to put off claiming my State Pension? Shortly before you reach State Pension age, you will normally receive a letter inviting you to claim your State Pension. You only need to reply to this if you decide to claim your State Pension right away. If you want to put off claiming your State Pension, you do not have to tell us. Simply keep the information until you are ready to claim. (You can tell us the date you want to start claiming your State Pension up to four months in advance.) If you have already claimed your State Pension but you want to stop claiming it to earn extra State Pension or a lump sum payment you should contact your pension centre (you will find the contact details on any correspondence The Pension Service has sent you). What do I need to do to choose between extra State Pension and a lump sum payment? If you have put off claiming your State Pension for less than 12 months we will work out how much extra State Pension you are entitled to and add this to your normal weekly State Pension (you will not have the option of a lump sum payment). However, if you prefer, you can ask us to backdate your claim and we can pay you arrears of State Pension in a one-off payment (this will not include interest.) If you have put off your claim for State Pension for 12 months or longer, you will have a choice. We will work out how much extra State Pension or lump sum payment you have earned, and ask you to choose which you want. You will have three months to make this choice, and we will pay you your normal weekly State Pension while you are deciding. 46

(Note: if you started to put off your claim before 6 April 2005, you will need to have continued putting off your claim until at least 6 April 2006 to be able to choose a lump sum payment.) If you choose extra State Pension, your normal weekly State Pension will be increased by the extra amount, and we will pay you arrears of extra State Pension back to the date from when your State Pension claim started. If you choose a lump sum payment, we will pay this to you (after taking off Income Tax, if appropriate) and your normal weekly State Pension will continue as before. Can I change my mind once I have chosen either extra State Pension or a lump sum payment? Yes. You will have a further three months after you ve made your choice in which you can change your mind. But any amount of extra State Pension or lump sum payment you have already received will need to be repaid before we can pay you your new choice. You will only be able to change your choice once. What if I can t make up my mind? If you have not decided which option to choose within three months of being asked to make a choice, we will normally send you a lump sum payment. We will assume you are a basic rate taxpayer, so we will take out tax at 22% (see page 25). But even if you know you want a lump sum payment you should tell us as soon as you ve decided, rather than simply wait for a payment to be sent at the end of the 3 month period, as delaying getting the payment could have financial consequences for you. If we have sent you a lump sum payment because you haven t told us which option you want, you may still be able to return the lump sum payment we ve sent you and ask us to pay it in the next tax year, or you can ask us to pay you extra State Pension instead. You will need to do this within 3 months. 47

Getting advice on your choices This guide is intended to help you decide whether you want to put off claiming your State Pension and, if you do, what choice to make when you finally claim it. But what is right for you will depend on your own individual circumstances so you may wish to discuss your options with your family and friends and get further advice from an independent financial adviser, or organisations that provide advice to pensioners before you make your decision. (You may have to pay for professional financial advice.) 48