Top up state pension

Posted By: Phil Handley DipPFS AwPETR On October 13, 2015 Category: State Pension

On the 12th October the government launched a new scheme for those who have reached state pension age to top up their state pension. The top up is available for Men over the age of 65 and Women over the age of 63. Additional income up to £25 per week can be purchased in return for a one of lump sum payment.

The amount required to be paid is based on the age at purchase but will be cheaper for older retirees.

The offer is open until April 2016 when the new, single tier state pension begins. After that date a more generous pension income will be available from the state.

The current state pension is worth up to £115.95 per week whereas the new flat rate scheme will be worth up to £155 per week.

The top up scheme, known as Class 3A has the added benefit of being inflation link, unlike purchasing an annuity which generally has a level income.

It would cost around £15,000 on the open market to achieve the same benefits the state scheme is offering for £8,900.

It will also have the added benefit of providing a spouses income on death.

A 65 year old would be required to pay £8,900 for an extra £10 per week.

When comparing the benefits offered by the state scheme, to those offered on the open market it looks like good value. To purchase an escalating annuity income with 50% spouses benefit, it would cost a 65-year-old around £15,000, (this is a male with no health issues and spouse 2 years younger) for the same £10 per week benefit.

Clearly it’s not going to be right for everyone. If you have a reduced life expectancy due to medical issues you may not receive full value back out of the scheme. Our advice would be to look at getting a quote on the open market first to see if it represents full value.