Baroness Ros Altmann is pleased that the take-up of the government’s state pension top-up scheme, introduced while she was pensions minister, was low with only 5 per cent of people taking it up.
Launched in 2015, the scheme allowed for 18 months’ men aged 65 or older and women aged 63 or older to increase their pot by up to £25 a week.
The programme, which was available between October 2015 and April 2017, was based on voluntary national insurance payments.
According to report from the Office for Budget Responsibility (OBR) published with the Autumn Budget, 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.
However, take-up was around 13,000, just 5 per cent of the original assumption.
A DWP spokesperson said:“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.”
Ms Altmann told FTAdviser that although she was minister when the scheme was launched, it wasn’t a policy that she had introduced.
She said: “I was most concerned that the public would not be misled into putting money into a state pension top-up unless they received financial advice.
“I didn’t want to promote this widely, because buying extra state pension might have been entirely the wrong decision for many people, and I wouldn’t want the government to be involved in any ‘pensions mis-selling’ which would have been a risk if people did not receive advice.”
Ms Altmann argued that if someone had shortened life expectancy, or was to die relatively young, “then buying a state pension top-up might be a very poor decision”.
Secondly, to enter the scheme, people would need thousands of pounds to spare, she explained.
She said: “If they withdrew money from their private pension in order to buy state pension top-up, then they would face tax on the withdrawal and tax on the extra state pension income, so again this would possible be a very poor deal.”
Thirdly, the top-up was only indexed to prices and not protected by the triple lock, and having extra state pension could reduce benefits for those who end up on low incomes in later life, she added.
Finally, Ms Altmann considered that the scheme was “really most suitable for people who were definitely intending to buy an index-linked annuity and had no reason to believe they would die relatively young, and who had sought independent financial advice to explain to them all the risks of buying the state pension top-up before they bought”.
She said: “Once they have bought it, they cannot get their money back.”
According to statistics published by the Department for Work and Pensions (DWP) this week, 58 per cent of people taking advantage of the scheme were female.
Andrew Tully, pensions technical director at Retirement Advantage, explained that this might be related to the fact that women have more gaps in their national insurance payments then men.
The majority of people who took advantage of the scheme were aged 65-69 (48 per cent), followed by older people, between 70 and 74 years old (26 per cent).
The average contribution was £17,000, which increased the state pension by £22.07 a week, or £1,150 a year.
Mr Tully said that these numbers suggest that the scheme was used by people financially better off, and advised, and who “clearly could afford to defer their state pension”.
According to Gem Durham, independent financial adviser at Obsidian, the difference £1,150 a year will make will “depend on the individual and their budget”.
However, this top-up represents good value for money, if compared to an annuity purchase, she argued.
She said: “With the triple lock and potential longevity, it could be of very good value for those who took it up.”
maria.espadinha@ft.com
