Skip to content

Claiming a lump sum payment

money By choosing to put off claiming (deferring) your State Pension you may get a lump sum payment. Before you decide whether to defer, find out more about the lump sum payment and how it affects inheritance, tax and other benefits.

How much you will get

If you choose to put off claiming your State Pension for at least 12 consecutive months you may 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 weekly State Pension you would have received plus weekly interest.

Claiming other benefits

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

If you defer claiming your State Pension then some days will not count towards any lump sum payment :

  • if you get other benefits
  • if someone gets a dependency increase in any of these benefits for you

This will only apply if you are living with the person getting the dependency increase, unless they are your husband or wife.

These benefits include:

  • Carer's Allowance
  • Incapacity Benefit
  • Severe Disablement Allowance
  • Widow's Pension
  • Widowed Mother's Allowance
  • Unemployability Supplement
  • any type of State Pension

Since April 2011, any days that you or your partner receive any of the following benefits will not count towards any lump sum payment.

  • Income Support
  • Pension Credit
  • Employment Support Allowance (income related)
  • Jobseeker’s Allowance (income based)

You won’t build up a lump sum for any days you are in prison.

Days that you receive Graduated Retirement Benefit or Shared Additional Pension will count towards a lump sum.

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, your lump sum will be taxed at 20 per cent, if the highest rate for your other income is 20 per cent tax. 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. This will make sure 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 HMRC if you have specific tax enquiries.

Tax credits

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

This can happen when you get Tax Credits 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 new tax year.

If you’re no longer getting Tax Credits in the new tax year, it will not affect your lump sum payment.

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 claimed your State Pension, chose a lump sum and then died, anything left will form part of your estate. This lump sum payment is liable for Inheritance Tax.

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 and you're widowed before you reach State Pension age, you will only get your late husband's contributions under certain conditions. You will not get a lump sum payment based on your late husband’s contributions if you remarry before you reach State Pension age.

Similar rules about inheriting the deceased's State Pension apply to widowers and surviving civil partners.

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.

More useful links