From next year legislation comes into force which allows pensioners to top up their state pensions. This new scheme is revolutionary in that it is the first to apply to existing pensioners.
In simple terms it allows those born before a set date, to buy an extra weekly pension of up to £25 per week (£1300 per year) by paying a lump sum contribution.
More importantly, this income is index linked which means it goes up with the rise in inflation or state pensions. There is also a spouse’s pension payable should the claimant predecease their spouse.
The costs are dependent on age. For example, at age 75 the cost of a weekly £1 top up is estimated to be £674 (broadly equivalent to an index linked return of 7.7% per annum). For those who are younger the costs increase slightly.
The Government has produced a calculator which allows people to work out the costs of a likely top up. This can be found here gov.uk/state-pension-topup
The only downside of the scheme is it will only be a limited time offer. It is due to run for just 18 months from October 2015, therefore it will be imperative for anyone interested to take advantage within this timescale.
Our initial impression is that this scheme is a great opportunity for many clients. In particular it will suit those who have monies saved, but are having to use these monies to top up their income.
As always we are happy to answer any queries on this opportunity. For our existing clients, we will be able to discuss the scheme in our next review meeting.