Opting out of your state pension for a year could end up earning you more money in the long run, but it may not benefit you until your 80s, according to research from NFU Mutual.

The state pension age will rise to 66 on 1st October 2020 and retirees receiving it in full are due to get £9,109.12 a year following a 3.9% increase in April this year. Deferring your state pension for a year increases subsequent payments by 5.8%.

Assuming the triple lock remains in place and therefore, state pension increases by at least 2.5% per annum, it may take nearly 15 years for those who opt out to start making money.

The extra amount you receive from deferring rises in line with the Consumer Price Index (CPI), rather than the triple lock. The average annual rate of CPI since 1990 has been 2.55%.

“It could be worth considering for healthy people, but if you don’t need the money, an alternative would be taking the cash and investing it wisely.”

Instead of deferring, those able to collect the State Pension and invest it could potentially receive better returns over such a long period of time. Had you invested £9,109.12 in the FTSE All-Share 15 years ago, it would now be worth £26,224.11.

Martin Ansell, pension expert at NFU Mutual, said: “Deferring the state pension is essentially a gamble on your own life expectancy.

“It could be worth considering for healthy people, but if you don’t need the money, an alternative would be taking the cash and investing it wisely.”

Deferral of State Pension waning?

Figures released last May by the Department of Work and Pensions (DWP) show that fewer people are receiving extra income as a result of deferring their State Pension than at any time in the last 20 years, according to analysis from Just Group.

Since April 6th, 2016, those deferring can receive 1% more income for every nine weeks they defer, equal to a return of nearly 5.8% extra for every year deferred. For someone on full State Pension of £168.60 a week, that would boost their annual income by £500 for every year deferred.

Stephen Lowe, group communications director at Just Group, said that it shows deferral on a downward trend – one in nine people were benefiting from deferring State Pension in 2004 but the figure is now one in every 12.

“The biggest recent change was alongside the introduction of the New State Pension in 2016 when the returns were made less generous,” he said.

“Even so, in today’s low interest rate environment they remain relatively healthy, particularly as the extra income is uprated with CPI.

“In general, deferral could work well for those in good health who are perhaps still working or who find that their State Pension income pushes them into a higher tax band than necessary.”