I put my state pension on hold and I’m owed £40,000 – how do I ‘re-retire’? STEVE WEBB replies

I was born in 1949 and when I reached retirement age at 65 I started to draw my state pension. After a few years I realised I could ‘de-retire’ which I did several years ago. 

For more than three years I have been trying to get some sense from the Department for Work and Pensions regarding the deferral process, my lump sum statement and the re-retirement process.

They have finally confirmed the accumulated lump sum held by the DWP is in excess of £40,000 and continues to accrue interest until such time as I decide to ‘re-retire’.

My question involves the precise nature of the rules which apply to my situation if I were to re-retire as I am now 75.

The guidance document the DWP issues is difficult to understand but it would appear I would need to complete claim form BR1.

My understanding is as follows:

1. If I die prior to making a re-retirement state pension claim using form BR1 my wife would still be entitled to the accrued lump sum and would also receive a widow’s pension?

2. If I die prior to making a re-retirement state pension claim, and my wife has pre-deceased me, my two daughters would not be entitled to the accrued lump sum?

On this basis can you confirm the exact point at which a completed claim form BR1 is determined to be a valid claim for me to re-retire?

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Steve Webb replies: Many people would assume that once you start claiming your state pension it would be payable for the rest of your life and that this was the end of the story.

However, as you have discovered, you have slightly more flexibility than this.

Just as you don’t have to take your pension as soon as you reach pension age, you can also stop taking your pension after you have started doing so, and then resume at a later date.

This process is sometimes known as ‘un-retiring’ and then ‘re-retiring’. You can however do this only once.

In terms of why people might do this, one scenario might be if someone stops work and draws their pension but then decides to go back to work – perhaps because they miss the work environment or for financial reasons.

In this case it can be worth ceasing taking your state pension as you might otherwise pay a lot of tax on your pension.

If you can live on your wage for a period and then resume your pension at a later date, you receive a reward for ‘deferral’ which can improve your overall financial position.

As I’ve covered in previous columns, there are two different sets of rules for those who defer taking a pension and these also cover people who stop taking their pension for a period and then start again.

For those, such as you, on the ‘old’ state pension system (who reached pension age before 6 April 2016), your reward for deferral is either:

– A lump sum of missed pension plus interest OR

– A higher state pension when you do take it; the rate is boosted by 10.4 per cent for each full year of deferral (with a pro rata increase for those who defer for a part year).

For those on the ‘new’ state pension system, the lump sum option has been removed. Instead you simply receive an enhanced pension when you do take it, increased by 5.8 per cent for each full year of deferral.

You have asked what would happen if you were to die before claiming your state pension for a second time.

Starting with the situation where your wife is still alive at that point, she would be able to inherit either a lump sum for your missed state pension payments or increments on top of her state pension to reflect the fact that you were in deferral when you died.

More details of the exact rules and regulations can be found in this factsheet: State Pension deferral: if you reached State Pension age before 6 April 2016 – and you die.

You also asked about your wife’s entitlement to a ‘widow’s pension’. This would be unaffected by your decision to defer.

Any derived entitlement to a widow’s pension is based on your record of National Insurance Contributions and is not affected by whether or not you have claimed your pension.

Next you asked about what would happen if your wife were to predecease you.

As you probably appreciate, the ability to derive a pension from someone else’s contributions relates only to a surviving spouse or civil partner, and not from parents to children.

The one exception to this is that your children could immediately make a state pension claim in your name after your death and this would be backdated three months.

However, this payment of three months’ worth of missed pension is far less than the three years or so that you have already foregone, so there would be a strong case for resuming your pension (and taking your full lump sum if you wish) in the unfortunate eventuality that your wife was no longer alive.

The rules are far less generous if someone dies while deferring under the new state pension system, and people should consider this carefully when making decisions about it.

The Gov.uk page about inheriting a deferred state pension in effect covers the new system by ‘omission’. It says you can only inherit if… and the first requirement is that the deceased reached pension age before 6 April 2016.

As people on the new system can’t satisfy that requirement it follows that there isn’t any inheritance. However, families can put in a claim after someone dies and the beneficiaries receive three months’ backdated state pension.

In terms of the date from which your new claim would start, you will be aware that the BR1 form allows you to specify the date at which you want the pension to come into payment (see below).

The DWP website simply says:

‘When you claim your deferred state pension you’ll be asked when you want it to begin. You’ll get your first payment at the end of the first full week in which you want to start getting your pension.’

Provided that DWP receives your claim form in advance of that date, I cannot see any reason why your entitlement to your resumed pension should not start from the date that you specify.

It is possible, of course, that processing backlogs may mean that you have to wait for the first payment to come through, but I would expect any such payment to be backdated to the date you specified on the BR1 claim form.