State Pension top up - is it for me?
Pensioners will, from later this year, be able to purchase up to a maximum of £25 per week extra State Pension. This has been introduced by the Government so that those pensioners who have done less favourably under the existing State Pension rules get an opportunity to top up their State Pension, before the new flat rate State Pension system is introduced.
Existing pensioners and those who reach State Pension age before 6 April 2016 can gain this additional State Pension by paying Class 3A Voluntary National Insurance contributions. In essence it will provide an opportunity for pensioners to improve their retirement income by obtaining inflation-proofed extra State Pension.
In order to qualify there are two entitlement conditions:
- You must have reached State Pension age before 6 April 2016, and
- You must have an entitlement to a UK State Pension (either basic State Pension or additional State Pension).
The rules on additional State Pension will apply to entitlements resulting from Class 3A contributions including inheritance. This means that a surviving spouse or civil partner will be entitled to at least 50% of the additional State Pension.
But isn't there already an existing top up system?
Yes, at present workers approaching retirement can make Class 3 Voluntary National Insurance contributions which allow people to fill gaps in their contributions record. For example, if someone has accrued less than the 30 years of contributions to qualify for the full basic State Pension.
The new scheme is not replacing these arrangements and the Government is advising pensioners to ensure that they have full entitlement to the basic payment before purchasing the new top up.
Who will benefit?
The Government have identified a number of existing pensioners and people who could benefit:
- people who may have lost out because of the structure of the legacy State Second Pension system
- hard pressed pensioners, especially those who rely on their capital to supplement their income
- people with small amounts of pension savings
- women who paid the married woman's reduced contribution rate, who are not eligible to pay Class 3 contributions for the years in which the married woman's stamp was in force.
How much will it cost me?
This is a key question. The top up has been set at an actuarially fair rate ensuring a fair deal for both contributors and the taxpayer. Prices will be lower for older pensioners simply because on average they will have a shorter life in retirement at the point they take up Class 3A. The rates are the same for males and females.
As an illustration for a person aged 65, the contribution required to receive an extra £1 pension per week is £890. To receive an extra £5 per week the contribution would be £4,450.
Further illustrations of cost can be found at www.gov.uk/state-pension-topup and accessing the personal calculator.
I am interested when will this be available?
There will be a short 18 month window to apply commencing 12 October 2015 and ending 1 April 2017.
If you are interested in obtaining further information you can register your interest at the above web address to receive updates in advance of the commencement date. Additionally a dedicated telephone line facility is available on 0845 600 4270 (0345 600 4270 from mobile phones).