Savers have been told to seek advice before taking advantage of the department for work and pension’s new state pension top-up service.
Launched on Monday 12 October, the scheme allows men aged 65 or older and women aged 63 or older to increase their state pension by up to £25 a week.
It will remain open for 18 months, and those who think they can benefit will be able to buy additional state pension.
Pensions minister Baroness (Ros) Altmann said: “This government’s commitment is to provide security for working people at every stage of their lives, and that includes giving people the chance to enjoy a financially secure retirement.
“Top-up will not be right for everybody, and it is important to seek guidance or advice to check if it is the right option for you.”
The scheme allows individuals to increase their state pension entitlement above the maximum of £115.95 a week, by up to an additional £25 a week.
They ‘buy’ this additional guaranteed income from the government by making a one-off lump sum payment.
The cost of a state pension top-up is based on a person’s age and takes average life expectancy into account.
For a 65-year-old, an extra £10 of pension a week will cost £8,900, while for a 75-year-old the contribution rate for the same amount of pension is £6,740.
It is open to anyone who reaches state pension age before 6 April 2016, in recognition of the fact that they will be ineligible for the new state pension which launches on that date.
The DWP estimates that 265,000 people are likely to take up the scheme.
Tom McPhail, head of retirement policy for Bristol-based Hargreaves Lansdown, said: “No private pension company can offer such an attractive deal; so if you are eligible and you want to buy yourself some inflation-linked guaranteed income for life, with death benefits for your spouse thrown in too, then this is the scheme for you.”
Information: www.gov.uk/statepensiontopup
Comparison of buying a £1,300 a year income: Annuity vs class 3A NICs | ||||
Age/enhancement | 65 | 70 | 75 | 80 |
Class 3A NICs | £22,250 | £19,475 | £16,850 | £13,600 |
Standard annuity | £35,215 | £30,128 | £24,743 | £18,800 |
Enhanced annuity | £30,751 | £25,490 | £20,302 | £15,611 |
Seriously enhanced annuity | £26,094 | £21,584 | £17,503 | £13,594 |
Source: Hargreaves Lansdown annuity service & DWP | ||||
Adviser view
Matthew Clark, director of Devon-based Seabrooke Clark, said: “In general terms, if you think you are going to live for a long time it is a good idea to maximise your state pension if you have got the money.
“There is a massive irony in the fact that the government has reformed pensions and driven people away from annuities but is now providing a service which lets you buy an annuity-style income.”
