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State pension boost of up to 25 to be made available

22 - 04 - 2014

Pensioners and those who reach pension age in the next two years will be able to acquire up to £25 of additional State Pension a week under plans set out by the Pensions Minister.

People due to retire before April 2016 is at risk of losing out on this new additional State Pension which will then be £144 a week.

However the announcement has been met with speculation, as some experts are critical, saying an existing scheme offers better value.

It is expected that 265,000 people will take advantage of the idea, whereby those nearing pension age pay an additional lump sum via National Insurance.

These payments will be collected by Class 3A, which is a new form of voluntary National Insurance contribution.

This sum of National Insurance will depend on details such as your exact age and will also take into account your life expectancy.

The scheme will be open to men born before 6 April 1951 and women born before 6 April 1953 and will be open for 18 months from October 2015.

Value for money?

According to the government’s online calculator, a 65-year-old will have to pay £890 in total, in order to get an extra £1 a week in pension.

A 75-year-old will have to pay £674 for the same extra income.

Minister for Pensions, Steve Webb stated;

“The State Pension top up will provide an opportunity for people to boost their retirement income by up to £25 a week. This is another bold action in how we build a stronger economy through choice in retirement income.”

“The scheme will give them a guaranteed, index-linked return and will be particularly attractive for women pensioners who will draw the higher pension for longer. It will also help the self-employed, who currently qualify for only the basic State Pension.”

Laith Khalaf, of the broker Hargreaves Lansdowne, stated the scheme appeared generous when compared with buying extra pension income with an annuity.

He also explained, however, that it was not as good a deal as an existing pension top-up scheme, collected via Class 3 National Insurance. 

He then added that Individual Savings Accounts (ISAS) might offer better value.

“For some, the secure inflation-linked income will be attractive.” He said.

“However, the income is taxable, which means some savers should pause to consider whether as ISA may be a better, more flexible home for their money, if they are willing to take more risk.”

For more information, click here to view The Ministerial Statement on Pension Top-up.

 



 

 

 

 

 

Foremans LLP Umberlla
Foremans LLP