People are being warned they could lose out on tens of thousands of pounds on their state pension - and you may never end up getting the cash back. Martin Lewis issued the warning and explained there are dangers related to the date you begin claiming your pension.
The finance expert, who set up MoneySavingExpert, explained that delaying a pension by five years means you could miss out on £30,000. He went on to say that if a recipient dies earlier than expected, the money can never be recovered, Birmingham Live reports.
It means that people approaching retirement age face an important choice over whether or not to start claiming their State Pension. Some pensioners won't be ready to put their feet up just yet - they may enjoy their job far too much.
Others can't wait to kick back as soon as possible. The reasons may vary - it may be to spend more time with the grandchildren, go on that long-awaited world cruise or retire to the cottage by the sea they've been dreaming of.
Pensioners who have worsening health problems or simply want to enjoy a relaxed life of retirement can't be blamed for wanting to make the most of their money in what time's left to them. The dilemma comes about because you do not get your State Pension automatically - you have to actually put in a claim for it.
Anyone of retirement age - which is currently aged 66 for both men and women - has the choice to either claim now or defer their pension payments. The longer you put off claiming your pension, the bigger the pay-off - but there is a risk attached.
What does deferring a pension mean and why do it?
The Government has outlined the options available to people approaching the State Pension retirement age if they're thinking of deferring (delaying) their claim. If you want to defer, you don't have to do anything as your pension will automatically be held back until you decide to tell the DWP you want to start getting it.
GOV.UK says: "The amount of extra State Pension you could get by deferring depends on when you reach pensionable age. If you reach State Pension age on or after April 6, 2016, your State Pension will increase every week you defer, as long as you defer for at least nine weeks.
"Your State Pension increases by the equivalent of 1 per cent for every nine weeks you defer. This works out as just under 5.8 per cent for every 52 weeks. The extra amount is paid with your regular State Pension payment."
The example given is that if you get £185.15 a week (the full new State Pension), you will accrue an extra £10.70 a week by deferring for 52 weeks. This amount could, of course, be larger if there is an annual increase in the State Pension.
Anyone who reached State Pension age before April 6, 2016, can opt to receive their extra money either in higher weekly payments or a one-off lump sum. You'll be asked what you prefer on applying to claim your deferred pension. The amount will go up every week you defer.
It will increase by 1 per cent for every five weeks deferred, working out as 10.4 per cent for every 52 weeks. The extra amount is paid with your regular State Pension payment. The example given for the full basic State Pension (£141.85 a week) is that you'll receive an extra £14.75 a week over 52 weeks.
Similarly, the amount of money you will receive will go up with any annual increase in the State Pension. Lump sum payments for those who defer for at least a full year will include interest of 2 per cent above the Bank of England base rate.
The Government warns that any extra pension payments after deferment could be taxed. For example, lump sum payments for a basic rate taxpayer will be taxed at 20 per cent.
So what are the risks?
MoneySavingExpert says those who defer their pension payments could actually be losing out by tens of thousands of pounds. It points out that if you are still working at pension age, or have other retirement income such as a company pension, then opting not to get your State Pension just yet might look like a good idea.
But whether you gain in the long run depends on how long you live. The Office for National Statistics has a What is my life expectancy? calculator, which shows that, on average, a man at the current pension age of 66 will live to 85 and a woman of the same age is expected to live until 87.
MoneySavingExpert says that when you eventually start drawing your deferred pension, it takes around 17 years to 'break even' by recouping the cash you missed out on by not getting it straight away. So as long as you live another 17 years or so, you'll eventually be paid everything you were entitled to receive.
It explains: "The odds suggest that if you're healthy and can afford to defer, you're probably better off doing so because the extra cash will be paid for long enough to make it worth it. But there are risks of course - put off claiming for five years and you'll have forgone £30,000 in income. Although you'll then get a higher State Pension payout, if you were to die suddenly you'd have lost out on a huge sum."
For this reason, many people suggest claiming a pension as soon as it is available. Individuals will need to weigh up the options depending on their circumstances.
How much is the State Pension 2022/2023?
The majority of British pensioners - 10.3 million of the total of 12.5 million drawing a State Pension - get the Basic State Pension.
This is for men born before April 6, 1951, and women born before April 6, 1953. It has gone up from £137.60 to £141.85 per week. Over a year, based on 52 weeks, that's a rise from £7,155.20 to £7,376.20.
The other 2.2 million - men born on or after April 6, 1951, and women born on or after April 6, 1953 - get the New State Pension. This is a higher sum and has risen from £179.60 to £185.15 a week, equivalent to £9,339.20 to £9,627.80 a year.
Research has criticised pension amounts as inadequate. To enjoy a 'moderate' standard of living, a single person needs £20,800 a year, rising to £36,000 for a couple, according to the UK Retirement Living Standards survey. To go a step further and enjoy a comfortable life in retirement, a single pensioner needs an income of £33,600 a year, while a couple will need £49,700.
