Claiming a lump sum payment

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.

Choosing when you receive your lump sum

The tax you pay on your lump sum will usually depend on the tax rate that applies to your other income in the tax year that you start claiming your State Pension. 

When payment will be made

If you reached State Pension age on or after 6 April 2010 your State Pension will be paid at the end of your benefit week. Your benefit week will be based on your National Insurance number. If you told the Northern Ireland Pension Centre on 11 April 2014 (which was a Friday) that you want to start claiming your State Pension, and you were due to be paid on a Monday, your first payment will be due on 21 April (for the period 15 April to 21 April, Tuesday to Monday).

If you chose a lump-sum payment, the Northern Ireland Pension Centre will work it out for the period you deferred claiming, up to and including Monday 14 April.

Delay paying your lump sum

You can ask the Northern Ireland Pension Centre to delay paying you your lump sum until the tax year after the tax year in which your State Pension claim starts. For example, if you claim your State Pension on 20 September 2014, after a period of deferring you can ask the Northern Ireland Pension Centre to pay you in the 2014-2015 tax year or 2015-2016 tax year.

If you choose the 2014-2015 tax year, the Northern Ireland Pension Centre will pay you immediately. If you choose the 2015-2016 tax year the Northern Ireland Pension Centre will not pay you your lump sum until 6 April 2015. Your weekly State Pension will be paid as normal.

You may want to do this if you would have to pay tax on other income at a lower rate in the tax year after you start claiming your State Pension. This could happen if your income in the next tax year is lower because you are no longer working. If your tax rate is lower in the year after you start claiming, you will only have to pay tax on your lump sum at the lower rate (for example, 20 per cent instead of 40 per cent).

Having less income in the tax year after you start claiming your State Pension will not automatically mean you pay tax at a lower rate. If you are expecting your income to be less, but you are not sure how this will affect the tax you will have to pay, you should ask HM Revenue & Customs for advice before you ask the Northern Ireland Pension Centre to delay paying you your lump sum.

Using later tax year rate to tax your lump sum

If you want the Northern Ireland Pension Centre (NIPC) to tax your lump sum based on your income for the tax year after you could start claiming State Pension, you must tell them when you choose to take a lump-sum payment.

The Northern Ireland Pension Centre cannot pay your lump sum before the start of the later tax year. For example, if you claimed your State Pension in December 2012 and want your lump sum taxed on the income you expect in the tax year 6 April 2014 until 5 April 2015, NIPC cannot pay your lump sum before 6 April 2014.

You will not build up any extra interest on your lump sum for any period you ask the Northern Ireland Pension Centre to delay paying it. If you ask them to delay paying your lump sum and you change your mind, they can pay your lump sum immediately. They will base the tax on your income in the tax year you would have started claiming your State Pension.

How tax is deducted from your lump-sum

The Northern Ireland Pension Centre deducts tax first and then pays your lump sum. If you choose a lump-sum payment, they will ask you to fill in a form so they know how much tax needs to be deducted. This will be based on what you estimate your income is going to be for the tax year you want them to pay your lump sum.

They will send you information with the form to help you work this out. You can also contact HM Revenue & Customs (HMRC) if you are not sure about how to fill in the form.

At the end of the tax year HMRC will check the tax the Northern Ireland Pension Centre deducted. HMRC can repay you if you have paid too much tax or ask you to pay more tax if you have not paid enough. You may not have paid enough tax because your circumstances have changed. For example, you may have taken a part-time job and the extra income may mean you pay tax at a higher rate.

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.

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