State Pension top up plan unveiled

The Government has revealed details of the new state pension top-up scheme, which will allow retiring savers to pay a lump sum to boost their state pension entitlement. The Minister for Pensions Steve Webb MP has provided further information on a new class of voluntary National Insurance contribution – Class 3A - following the Budget.Mr Webb said: "We are calling this the State Pension top up and it is specifically designed to allow some of today's pensioners and those close to pension age to boost their retirement incomes."This change will allow existing pensioners and those reaching State Pension age before 6 April 2016 in the opportunity to gain additional State Pension by paying Class 3A voluntary National Insurance contributions."It will provide an opportunity for pensioners to improve their retirement income by obtaining inflation-proofed extra additional State Pension."This could be particularly beneficial to women and other groups such as self-employed people who have not done well under additional State Pensions and have not previously been able to top these up."{desktop}{/desktop}{mobile}{/mobile}The Government said the contribution required for an extra £1 pension per week for a person aged 65 is £890.This means that for £4,450, the individual could receive an additional £260 per year for life, increased in line with prices and inheritable on death in the same way as existingadditional State Pension: with a minimum of 50% for the surviving spouse or civil partner.For a 70 year old the rate reduces to £779 and at age 75 the rate is £674.Laith Khalaf, head of corporate research at Hargreaves Lansdown, said the scheme looks generous compared to current annuity rates, but not as good a deal as the existing Class 3 state pension top up scheme.He said: "This top-up scheme looks pretty generous compared to buying an annuity from an insurance company."It is an olive branch from the government to those who retire before the new single tier state pension is introduced in 2016."The scheme offers pensioners another option for putting their savings to work, which will be particularly welcome given today's low interest rates on cash held in the bank."For some, the secure inflation-linked income will be attractive. However the income is taxable, which means some savers should pause to consider whether an ISA may be a better, more flexible home for their money, if they are willing to take more risk."

State Pension top up plan unveiled

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