Hargreaves Lansdown have suggested that the government could use the launch of this scheme on Monday as an opportunity to announce the rate of the new state pension which will launch in April next year. The rate is expected to be set at around £155 a week.
The state pension top up scheme allows individuals to increase their state pension entitlement above the maximum of £115.95 a week, by up to an additional £25 a week. They ‘buy’ this additional guaranteed income from the government by making a one-off lump sum payment. The actual cost varies depending on the individual’s age. It is open to anyone who reaches state pension age before 6 April 2016, in recognition of the fact that they will be ineligible for the New State Pension which launches on that date.
According to DWP estimates, 265,000 people are likely to take up the scheme.
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, commented:
“No private pension company can offer such an attractive deal; so if you are eligible and you want to buy yourself some inflation-linked guaranteed income for life, with death benefits for your spouse thrown in too, then this is the scheme for you.”
“Whilst the scheme is a good one, we find it ironic that a government which has done so much to undermine the annuity market, is now launching a scheme which looks remarkably like a nationalised annuity business. We are also disappointed that the government hasn’t done more to help individuals to access state pension data and projection tools online.”
The scheme is available for 18 months from 12 October 2015. There will be a 90 day cooling off period for anyone who wants to reverse the transaction after it has been set up.
Separately there is the Class 3 NICs scheme which allows anyone with gaps in their National Insurance record to buy additional years to fill in the gaps. This scheme is far more generous costing just £733.20 to buy an additional year of state pension, which would be worth £3.86 a week or £200 a year, meaning it would deliver pay-back on your investment within around 4 years.
Tom McPhail added:
“Anyone looking at buying some additional state pension should make sure they have filled in any gaps in their standard record using the Class 3 scheme before looking at the Class 3A additional pension top-up scheme.”
