When you resume claiming your state pension payments, they will still be subject to income tax based on your current income tax rate. However, since you will no longer be working, the tax amount you owe is likely to be lower, potentially placing you in a lower tax bracket.
If your only income after retiring is the state pension, along with a small private pension that keeps you below the personal tax allowance of £12,570, then you won’t have to pay any taxes.
However, if you have a significant private pension that is also taxable, deferring your state pension payments may reduce the tax benefits. The longer you defer, the higher your state pension payments will be, but you may end up owing more income tax overall. Nevertheless, your tax bill is expected to be lower than it currently is, as long as your total pension income is lower than your income from work.
Aside from the tax implications, your decision ultimately rests on whether you believe the additional state pension payment in the future will be more valuable to you than the current payments are now. The financial benefit you receive depends on your work income, future pension income, the amount of tax you pay overall, and your life expectancy.
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