Several pension industry experts have warned of yet more at-retirement complexity from the government, after this morning’s launch of its state pension top up scheme.
Men aged 65 or older and women aged 63 or older are now being offered a chance to increase their pot by up to £25 a week.
For a 65-year-old, an extra £10 of pension a week will cost £8,900 whereas for a 75-year-old the contribution rate for the same amount of pension is £6,740.
Minister for pensions Baroness Ros Altmann said: “It won’t be right for everybody and it is important to seek guidance or advice to check if it is the right option for you, but it could be particularly attractive for those who haven’t had the chance to build significant amounts of state pension, particularly many women and people who have been self-employed.”
The cost of a state pension top up is based on a person’s age and takes average life expectancy into account.
Peter Bradshaw, national account director at Selectapension, agreed that the top up may not be right for everyone, pointing out that the rules are extremely complex and those approaching retirement risk making unnecessary voluntary contributions, which will have no real impact on the amount they receive.
He said: “With 17,000 already planning to top up their state pension, and an additional 250,000 forecast to take up the offer, this is a real opportunity for advisers to engage and deliver value for consumers.
“Planning tools and education will be crucial to ensure that those who are entitled to make this additional contribution, are not only aware of their entitlement to supplement their state income, but are also conscious of both the pros and cons before opting for the new state pension top up.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, told FTAdviser that while this is a good scheme, the Department for Work and Pensions’ communication around the state pension has been “shockingly bad”.
He said: “The pensions minister talks about people seeking advice or guidance but they shouldn’t have to. If the information on the DWP website was better, people would be able to assess the various options for themselves.
“There should be simple online tools so that individuals can see what they are entitled to and what their various options are: they could fill in gaps in their record, they could defer their state pension or they could top up with the class 3a scheme.
“Unfortunately the DWP has failed so far to deliver the necessary tools and information to help people with these decisions.”
He conceded this is not Ms Altmann’s fault, rather an inherited mess, but argued she should now seriously question the situation.
David Trenner, technical director at Intelligent Pensions, commented: “I suspect Ms Altmann’s generalisations work for a government minister, but they fall well short of the ‘know your customer’ requirements for a regulated adviser.”
Andy Cumming, head of advice at Close Brothers Asset Management, said this is another decision to navigate amid an already complex haze of pension reforms.
He said: “There may be tax issues to be aware of, and people need to consider individual financial circumstances before making a move. Ultimately, for those with retirement still a few years ahead, it should reinforce the need to build up savings earlier on.
“Bridging the gap between making the decision to retire, and claiming the state pension, can be a challenge if this isn’t thought through.”
Billy Burrows, director of Retirement Intelligence, added that the top ups are akin to purchasing an annuity, so it is important people weigh up the consequences of exchanging savings for annuity style income, adding in many cases this might require advice.
peter.walker@ft.com
