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State pension top-up


By: Graham Walker Date: 27 October 2015
Category: Lovewell Blake Financial Planning

The Government is offering an opportunity for those reaching their state pension age before 6 April 2016 to top-up their state pension income, even if they are deferring taking income benefits.

This opportunity is only available from 12 October 2015 until 5 April 2017.

The current state pension offers a guaranteed retirement income, increasing in line with inflation, and a 50% spouse's income. This top-up provides the same guaranteed benefits in exchange for you giving up access to part of your capital.

You are able to purchase between £1 and £25 per week extra income, even if you already have the maximum state pension, a possible £1,300 extra per annum.

Whether you are male or female, if you are aged 65 you could now purchase an additional £25 per week in exchange for a lump sum of £22,250. That is the equivalent of purchasing an annuity at a rate of 5.84%. This places the state pension top-up at around 50% higher than purchasing a standard annuity.

The cost of topping-up by £25 per week drops to £16,850 if you are age 75. This reduction in cost reflects the difference in life expectancy, ie the average length of time over which the capital will be paid as income.
To find out how much your state pension top-up would cost visit the Government website.

Who will benefit from this state pension income top-up depends very much on personal circumstances.
Those who may benefit most are looking for security of income, are healthy, have a history of family longevity and are married (the younger your spouse the more beneficial the 50% spouse's benefit).

You may not benefit if you do not have a full National Insurance contribution history (often women or the self-employed), are in poor health (an enhanced annuity may be preferable), are single, are in receipt of other state benefits, the top-up income pushes you into a higher income tax bracket or your income goes above £100,000 and income tax allowances are lost.

If you wish to consider this option you should measure it against your personal circumstances and alternative investment of the purchase price.

For those reaching state pension age from 6 April 2016 onwards the new state pension will apply.

If you would like to discuss this further please call us on 01603 619620.
 
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