Government’s state pension top up flopped

Government’s state pension top up flopped

The government’s state pension top up scheme – which for 18 months allowed men aged 65 or older and women aged 63 or older to increase their pot by up to £25 a week – has been revealed as a failure, with only 5 per cent of people taking it up.

Launched by then pension minister Baroness Ros Altmann in October 2015, the scheme offered an “opportunity for people already retired, or reaching state pension age before April 2016, to boost their later life income".

The programme, which was available between October 2015 and April 2017, was based on voluntary national insurance payments.

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However, according to report from the Office for Budget Responsibility (OBR) published with the Autumn Budget, savers did not take advantage of this scheme.

The original measure assumed take-up would be 265,000, with £870m of national insurance contribution payments expected in total, leading to higher state pensions spending over the longer term, the document said.

However, take-up was around 13,000, just 5 per cent of the original assumption.

Even though the average payment of around £17,000 was much higher than the £3,200 assumed in the costing, only £225 million was received in national insurance contribution payments.

The OBR said: “We will carry out a fuller evaluation of the reasons for this large shortfall next year.”

According to Andrew Tully, pensions technical director at Retirement Advantage, this scheme allowed people to pay “a lump sum now to get a higher income from the state for the rest of their life”.

In face of the low take-up numbers, Mr Tully believes that “many people couldn’t afford to shell out a lump sum now, even if the income they get back over many years does make it a good deal”.

However, there is no certainty it is a good deal as it depends how long the person will live, he added.

He said: “The fact the average payment is higher than [what] the government estimated suggests it was wealthier people who chose to do this, perhaps after receiving advice.”

Sir Steve Webb, director of policy at Royal London and former pensions minister, wasn’t surprised by the numbers, with several reasons for this result.

First, “there was very little publicity beyond the initial launch”, he said.

A spokesperson for the Department for Work and Pensions disputed Sir Steve's comments.

“We promoted the state pension top-up through an extensive media campaign over two years which encouraged eligible people to find out more about the scheme. We were always clear that the scheme would not be suitable for everyone.”

The website, which includes the contribution calculator, has received more than 700,000 visits since launch, they added.

However Sir Steve claimed the campaign to promote the scheme was underfunded.

“The government had a general embargo on paid-for communications - with odd exceptions like ‘we’re all in’ for auto-enrolment, where the advertising budget was set aside from the start.

“If this had been a commercial product there would have been a lot of marketing but this was done largely on word of mouth and a few posters,” he said.