How to increase State pension payout: Millions offered £100-a-month boost for life
MILLIONS of pensioners are to be offered the opportunity to boost their State pensions by up to £25 a week for the rest of their lives.
A new class of National Insurance contributions, which can be paid in return for a higher pension, will be opened up to 13 million pensioners this October.
Under the new top-up system those who feel they are likely to miss out on the £155-a-week fl atrate pension, which comes in next April, will be able to buy a bigger pension.
Women who have taken a career break to raise a family and the self employed are likely to take advantage of the scheme which will enable them to enjoy the same pension as their peers.
The scheme is expected to attract £415million in 2015-16 and £435million the following year in extra National Insurance receipts, according to the Office for Budget Responsibility.
Pensioners can pay a lump sum in return for an additional £1 to £25 a week with the top-ups increasing in line with the consumer prices index measure of inflation each year.
They can also be passed on as an inheritance with a surviving spouse or civil partner entitled to at least half the extra State pension.
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The new pension flexibilities will allow individuals to withdraw their money and buy additional State pension at a much lower net rate than buying an annuity
Pensions Minister Steve Webb said: “We have devised a way that will provide a fairer system. This is a real opportunity for people to increase retirement income.”
About 12.9 million people, including those living abroad, will be able to top up their pension.
Everyone already receiving the State pension, and those who will reach state pension age before April 6, 2016, will qualify.
It therefore applies to men born before April 6, 1951, and women born before April 6, 1953.
The policy will see the creation of a new class of voluntary national insurance contributions, “3A”.
For example, a 65-year-old will have to pay £890 in 3A contributions to receive an extra £1 a week.
Someone aged 70 will need to pay £779, while an 80-year-old will pay £544. A 75-year-old looking to buy the maximum of £25 a week will need to stump up £16,850.
Chris Noon, a partner at pension specialist Hymans Robertson, said: “The new pension flexibilities will allow individuals to withdraw their money and buy additional State pension at a much lower net rate than buying an annuity.”
Alan Higham, retirement director of investment group Fidelity, said: “The rates to buy extra pension from the State look generous compared to annuity rates, but don’t forget about income tax.
“The extra State pension is taxed at normal income tax rates but you can spend the lump sum without paying any tax on it and you may be able to shelter the interest you could earn on the savings by putting it in an ISA.”
