Sir Steve Webb, the former Liberal Democrats Pensions Minister, has spoken out.Sir Steve Webb, the former Liberal Democrats Pensions Minister, has spoken out.Sir Steve Webb, the former Liberal Democrats Pensions Minister, has spoken out.

State pensioners have been urged to consider refraining from taking a Department for Work and Pensions (DWP) “reward” which could actually leave them worse off. Sir Steve Webb, the former Liberal Democrats Pensions Minister, has spoken out.

In his This Is Money column, Sir Steve said: “Turning now to the issue of deferring taking your state pension, your ‘reward’ for each year of deferral is a 5.8 per cent boost to the rate of pension you will be paid.

“If you had deferred for one year, until your 66th birthday, you could have expected to live for around 17.8 years more on average.

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“If we multiply the 17.8 years by a 5.8 per cent boost, we can see that you would typically get back roughly 100 per cent of one year’s pension as your reward for deferring for one year, thereby roughly breaking even.

“However, when you defer for a second or further year, the reward for deferring does not go up – it is still 5.8 per cent of your base pension. This means that deferring becomes less good value with every passing year.”

He added: “If we multiply the 17.8 years by a 5.8 per cent boost, we can see that you would typically get back roughly 100 per cent of one year’s pension as your reward for deferring for one year, thereby roughly breaking even.”

“But 12 lots of 5.8 per cent is well short of 100 per cent,” he said. “In other words, on average, you could expect to lose out if you defer another year from now.” He continued: “If you have no spouse then your pension would simply die with you, aside from a strange rule which would allow your heirs to make a posthumous claim on your behalf and receive three months’ worth of payments as a lump sum.”

Webb said: “If you enjoy working and plan to continue doing so, there can be tax advantages to deferral, as otherwise your state pension would be added to your wage and this could potentially push you into a higher tax bracket.”