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Assessing if topping up is appropriate

This article is part of
Guide to topping up state pension

Using the state pension top-up is essentially the equivalent of buying an annuity from the government.

As with buying any annuity, Intelligent Pensions’ technical director David Trenner, says it will be good for some and not so good for others.

The decision to use the new state pension top-up is relatively complex and will depend on a host of individual factors.

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Unfortunately, he says the government has not made things very clear and if someone only has £25,000 to invest, they may not wish to spend fees for specialist regulated advice to ensure they make the best decision.

But, Mr Trenner added, if they do pay for advice and the adviser gets it wrong they can be compensated; if they just do what the government says and it is wrong, then there is no comeback.

Catrina Ogilvie, senior consultant for executive and retirement services at Broadstone, says advisers should start by getting a statement of state pension entitlement.

Clients can do this by going to and requesting one. This statement will let you clients know their accrued state pension entitlement.

If there is a shortfall, Ms Ogilvie says this may be due to them starting their employment later in life, career breaks or periods of overseas employment, which means they may not have accrued sufficient national insurance contributions to reach the maximum entitlement.

Given how valuable the state pension is (it is paid gross but does use up some personal allowance: the income you are able to receive before paying tax), Ms Ogilvie says it is worth everyone considering topping up if they have a shortfall and they can afford to do so.

As the top up is like investing in a ‘government annuity’ scheme, Billy Burrows, director of Retirement Intelligence, says some of the same issues to be considered when purchasing an annuity from any provider should be taken into account.

These include: health and life expectancy including spouse/partner, personal circumstances, future cash/income requirements and attitude to risk.

If you are not in good health, you may not live long enough to get back your investment, warns Steven Cameron, regulatory strategy director at Aegon, who says those struggling with their health may be able to get better terms through an impaired life annuity.

“It might not suit people who think they will require a lot of income flexibility in retirement as you’ll effectively be swapping a lump sum for a regular fixed income which you won’t be able to vary to meet unexpected costs.”

As an add-on to the state pension, Malcolm McLean, senior consultant at Barnett Waddingham, says the extra pension will be subject to income tax and will therefore be less beneficial for higher rate taxpayers than those paying tax at the standard rate, or are otherwise non-taxpayers.