The state pension enhancement enjoyed by people who choose to defer taking the payment is to be cut by almost half, the government announced today.
Currently, the government encourages older people to postpone claiming their state pension by adding 10.4% on to the income for each year deferred. However, for anyone hitting the state pension age from April 2016, this rate will fall to 5.8%.
In a statement, pensions minister Steve Webb said the Government Actuary had been asked to report on what was the 'actuarially fair rate of increments for those reaching state pension age on or after April 6 2016 and those choosing to [postpone] their state pension beyond state pension age'.
Webb said: 'Following careful consideration of the information provided, the proposed new rate will be one ninth of 1% for each week the state pension is not claimed.
'This means a 1% increase for every nine weeks of deferral or around a 5.8% increase for each full year.'
Draft legislation for this change will be published later this year.
Commenting on the change, Tom McPhail, head of pensions research at investment firm Hargreaves Lansdown, said: 'The government is using the last day of term to shovel out the less popular outstanding announcements before heading off on holiday.
'The reduced rate of increase now means that someone choosing to defer for one year will now have to live for around 19 years to benefit from the decision; this compares to only around 10 years under the current rate of increase of 10.4%.
'With the population living longer and more people staying in the workforce later, it is hardly surprising that the government has chosen to cut back on this generous rate of return.'