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.
It is open to anyone who reaches state pension age before 6 April 2016, and the DWP estimates that around 265,000 people are likely to take up the scheme.
Peter Bradshaw, National Account Director at Selectapension, commented:
“The new state pension top-up could be an appealing new way to boost retirement income, but it’s not appropriate for everyone. The rules governing the state pension are extremely complex and those approaching retirement risk making unnecessary voluntary contributions which will have no real impact on the amount they receive.
“With 17,000 already planning to top up their state pension, and an additional 250,000 forecast to take up the offer, this is a real opportunity for advisers to engage and deliver value for consumers. Planning tools and education will be crucial to ensure that those who are entitled to make this additional contribution, are not only aware of their entitlement to supplement their state income, but are also conscious of both the pros and cons before opting for the new state pension top up.”
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, said:
“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.”
Andy Cumming, Head of Advice at Close Brothers Asset Management, added:
“While the purpose is a sound one – to offer fairness to those missing out on the new flat-rate – this is still another decision to navigate amid an already complex haze of pension reforms. There may be tax issues to be aware of, and people need to consider individual financial circumstances before making a move. Ultimately, for those with retirement still a few years ahead, it should reinforce the need to build up savings earlier on. Bridging the gap between making the decision to retire, and claiming the state pension, can be a challenge if this isn’t thought through. Planning ahead will help to ensure that relying on the state pension does not form the foundation of retirement income.”
Minister for Pensions, Baroness Altmann, commented:
"Top up is an opportunity for people already retired, or reaching State Pension age before April 2016, to boost their later life income. It won’t be right for everybody and it’s important to seek guidance or advice to check if it’s the right option for you. But it could be particularly attractive for those who haven’t had the chance to build significant amounts of State Pension, particularly many women and people who have been self-employed."
