I’m 75 and haven’t touched my state pension – how much is it worth now?

Dear Kenneth,

It’s great that you have managed to work for so long and that this income, plus your private pension, has enabled you to defer your state pension.

As you reached state pension age before April 6, 2016, you have the option of taking your deferred state pension as a lump sum – anyone reaching state pension age after this date doesn’t have a lump sum option and can only take the deferred amount as extra income.

A lump sum is the amount of state pension not claimed, plus interest, which compounds. The rate of interest is about 2pc above the Bank of England base rate (so a decent amount in the past year).

To get a lump sum, you have to have deferred for at least 12 months, which you have.

I can give you a rough estimate of what your lump sum would be based on the information provided.

It sounds as though you could have claimed from June 2014. When your pension would have paid you £113 a week (£5,876). In not claiming your state pension for ten years, it looks as though you could be on for a lump sum of £69,540.

With such a big lump sum potentially, you will want to make sure you don’t pay more tax than necessary when you receive it, as income tax is due on lump sums. The lump sum is taxable at your current rate – you won’t be pushed into a higher tax rate because you received it.

So if you took it too soon, in the tax year in which you still had income from employment, you could end up paying a lot more tax. However you have the option of paying the tax in the following tax year, so that earned income is no longer included and your tax bill is reduced.

Even so, this might prompt you to consider taking the deferred pension as additional income instead – but you’d not necessarily pay less income tax this way either – it would depend how long you live for. The terms for deferred state pension income for those who reached state pension age before April 6 2016 are slightly more generous than they became subsequently. You’d earn extra state pension at 1% of the weekly pension for every five weeks you put off claiming.

Over 10 years, you would have earned extra state pension at 104pc of the basic amount. If the basic state pension is £8,756 from next April, as is expected following a rise in line with the 8.5pc earnings increase under the terms of the triple lock, your higher deferred state pension income would be £17,687 – or £8,931 higher than it would be without the deferred amount, each year.

If you lived for a further 7.5 years from when you start claiming, you would end up better off taking the extra income rather than the lump sum, having earned more than the lump sum amount by this point.

It’s worth talking this through with the Pension Service, though, as what I’ve given above is only estimates and I haven’t worked out the possible extra tax bill over the years from taking the deferred income rather than the lump sum. I also don’t know how much private pension you will still have coming in and this will affect tax calculations. You can reach the service on 0800 731 0469. Whichever way you choose, you are in a good position, thanks to your decision to defer.  

Write to Pensions Doctor with your pension problem: pensionsdoctor@telegraph.co.uk. Columns are published weekly

Are you concerned about your finances in retirement? Please share your experience in the comments section below