When a person notifies the Department for Work and Pensions
(DWP) of an intention to claim or recommence a claim for the state
pension following a period of deferral that has continued for more
than 12 months, the DWP will provide details of the potential
pension entitlement. This will include a comparison between the
amount the person will receive if that person chooses the enhanced
weekly state pension and the amount payable as a lump sum together
with the weekly state pension paid at the standard rate.
Once the claim for the state pension takes effect, the person
has a limited time (prescribed by the DWP) to choose between the
enhanced weekly state pension and the lump sum. If the person does
not notify the DWP of their choice within that time, the person
will be paid the lump sum.
When a person chooses to receive the state pension lump sum,
then that person may elect to receive the lump sum payment in the
tax year immediately following the tax year in which the claim for
payment of the weekly state pension takes effect. Once again, the
person has a limited time (prescribed by the DWP) to make the
election. This will affect the tax year for which the state pension
lump sum is assessable (see
EIM74653).
Where an election is made, the earliest date that DWP may
make payment of the lump sum will be 6 April of the later tax year.
Nevertheless, a person might choose the later year if they
anticipate that their marginal rate (see
EIM74652) in the year in which the claim
for payment of the weekly state pension takes effect will be
greater than it will be in the following year.
For example, the person may have deferred claiming the state
pension whilst working beyond the state pension age. Consequently,
the level of income in the tax year in which they retire and claim
the weekly state pension might be greater than that for the
following year. In that instance, it might be advantageous to
receive payment of the state pension lump sum in the year following
the year of retirement.
You may receive requests from pensioners for assistance in
working out their likely marginal rate, in order to help them to
make this decision.
When you give advice about the marginal rate, you must stress
that
You must take care
