Quantcast
Menu
Save, make, understand money

Retirement

Top up scheme allows pensioners to boost state pension by £25 a week

Lucinda Beeman
Written By:
Lucinda Beeman
Posted:
Updated:
02/04/2014

Pensioners will be able to top up their state pension by up to £25 a week from next year under government plans published today.

The top up scheme – which was announced by the Chancellor in last month’s Budget – will allow people to make Class 3A Voluntary National Insurance contributions to increase their pension by between £1 and £25 a week.

The scheme will be available from October 2015 to anyone reaching state pension age before 6 April 2016.

The cost of the top up will be based on a person’s age and takes average life expectancy into account. For example, for a 65-year-old an extra £1 of pension a week will cost £890, whereas for a 75-year-old the contribution rate for the same amount of pension is £674, the Department for Work & Pensions (DWP) said.

The DWP has created an online calculator to illustrate the contribution rates.

Steve Webb, Minister for Pensions, said: “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. “

Laith Khalaf of Hargreaves Lansdown said the scheme was generous compared to annuity rates, but warned about the tax implications.

He said: “This top up scheme looks pretty generous compared to buying an annuity from an insurance company. It is an olive branch from the government to those who retire before the new single tier state pension is introduced in 2016.

“The scheme offers pensioners another option for putting their savings to work, which will be particularly welcome given today’s low interst rates on cash held in the bank. For some, the secure inflation-linked income will be attractive.

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

Top ups can be inherited, the DWP said, with a surviving spouse or civil partner entitled to at least 50 per cent of the additional pension.

It said the scheme will be particularly attractive for women pensioners who will draw the higher pension for longer and the self-employed, who currently qualify for only the basic state pension.