Pensioners and those who reach pension age in the next 2 years will be able to acquire up to £25 of additional State Pension a week under plans set out today (2 April 2014) by the Pensions Minister. The State Pension top up will be available from October 2015 to all those reaching State Pension age before 6 April 2016.
The scheme will allow people the opportunity to get inflation-proofed additional State Pension by making Class 3A Voluntary National Insurance contributions.
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 £1 of pension a week will be £890, whereas for a 75-year-old the contribution rate for the same amount of pension is £674.
A calculator is available online which illustrates the contribution rates based on age and how much people wish to increase their additional pension by.
Malcolm McLean said:
“This is a very viable scheme which a number of pensioners may wish to consider as a means of boosting their existing pension income and give themselves a guaranteed, index-linked return for the remainder of their lives.
“It will not be right for everyone but it does provide a possible cost-effective opportunity for those who reach their state pension age before the new higher flat rate pension comes in from 6 April 2016 to top-up their pension award by up to £25 a week and bridge at least some of the gap between the two. (Probably the main motivation for the Government introducing the top-up scheme is to allay some of the criticism about the cliff-edge nature and before-and-after impact of introducing the single-tier pension on a specified date).
“It is also available to most other existing pensioners who could see it as an alternative to leaving their savings in low interest paying accounts. It might be particularly attractive for female pensioners who have generally longer life expectancy than males, as well as the self-employed who qualify currently only for the basic state pension.
“It is worth noting that the top-ups can also be inherited, with a surviving spouse/partner entitled to receive at least 50% of it along with any other state second pension on the pensioner’s death.
“It will be interesting to see the level of take-up produced by the scheme which is expected to be available for a limited period of 18 months.”