‘I deferred my state pension but I think I’ve been short-changed’

My calculation gives me £249.56 which is close enough to the work and pensions calculation of £242.70 per week. I have not seen their calculations.

However, I’m concerned that the above does not take into account inflation over the six years. I believe inflation should be taken into account.

I have written to the Department for Work and Pensions (DWP) expressing my concern that the final weekly pension has not taken into account inflation but have not received a satisfactory answer.

May I ask for your comments and assistance.

Yours sincerely,

– David

Dear David

I think it’s worth setting out the rules on deferral and increases that are normally paid on state pensions in payment.

You’ve retired under the “new” state pension rules that apply to people reaching pension age from April 6, 2016.

You could have claimed £165.03 per week in December 2017, which was around £5.50 more than the full flat rate pension at the time. This is likely due to the fact you’d built up some additional state pension – earnings element – under the old system. This would have been retained as something known as a ‘protected payment’ because you would have been better off under the old system.

The state pension “triple lock” guarantee means that the new flat rate and old basic state pensions are currently increased in April each year by the highest of either the annual rise in prices (inflation), earnings or 2.5pc. Protected amounts are also increased when in payment, but by consumer price index (CPI) rather than with the triple lock.

What you get for deferring

People reaching pension age after April 6, 2016 can get 1pc for every 9 weeks that they defer taking their state pension, if they defer for at least 9 weeks initially. This works out as an annual rate of 5.77pc. The extra amount is paid with your regular state pension payment, when you claim it.

Although you’ll benefit from the triple lock on most of your pension, it won’t apply to the extra amount you’ve earned by deferral, or any protected amount – the part over the standard full flat rate pension – when in payment.

Your calculations

The first one is that it looks like you’ve added an extra year of deferral. If your starting pension would have been £165.03 per week in December 2017, you wouldn’t have started to earn an extra 1pc until February 2018 – 9 weeks after.

Your email suggested a 12-month deferral amount for December 2017. Whilst this might have been a typo and you meant for 2018, You appear to include seven years’ worth of annual increases plus a pro rata amount, rather than six.

It also looks like you’ve applied the annual 5.8pc to your state pension plus the amount for deferring every year.

My understanding is that the deferral applies to what your state pension would have been, without the deferral, in each period. Otherwise, you are earning a compound effect on the deferral payment too.

Although it is worth saying that there is a shortage of information on exactly how the increase for multiple years works.

Whilst I do not have access to the DWP calculations, I ran my own calculation with assumptions as to how inflation might’ve been applied to the different elements of your starting pension over time. There is a distinct lack of detail available for cases where people defer for more than one or two years. I reached a figure within £1 of the DWP figure from April 2024.

So, whilst I cannot confirm for sure whether their calculations are correct, I believe the DWP have applied inflation increases in some way.

I do think it would put your mind at rest though if the DWP could share a breakdown for how the multiple years of deferral have been calculated and how any price inflation increases have been applied.

Wishing you a very happy and healthy retirement.

Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.