Wealth

The new state pension top-up scheme explained

The Department for Work and Pensions (DWP) has published details about how the state pension top-up scheme will work

In a ministerial statement this morning, pensions minister Steve Webb said existing pensioners and those reaching State Pension age before 6 April 2016 would have the opportunity to gain additional State Pension by paying Class 3A voluntary National Insurance contributions

The statement said there would be two entitlement conditions - that contributors must have entitlement to a UK State Pension and must reach State Pension age before 6 April 2016

Class 3A Voluntary National Insurance Contributions

To allow pensioners and those reaching State Pension age before 6th April 2016 to top up, the government is introducing the snappily-named Class 3A Voluntary National Insurance Contributions

These extra contributions can provide a maximum extra £25 per week of State Pension. Those eligible to make the contributions will be able to do so for 18 months from October 2015 onwards. There will be a cooling-off period of 90 days

For a 65-year-old to get an extra £1 a week, they will need to pay £890 in voluntary contributions (the rates are the same for men and women). To get the full extra £25 a week (or £260 per year) for life, they would need to pay £4,450 in additional contributions

For a 70-year-old to get an extra £1 a week, they would need to pay £779, while this falls further to £674 for those aged 75

It’s worth noting that the money you get back in the form of your State Pension will actually increase in line with the Consumer Prices Index measurement of inflation

Who benefits?

The top-up scheme has been described as ‘an olive branch from the Government to those who retire before the new single-tier pension is introduced in 2016’

The government suggests that this inflation-proofed additional State Pension will benefit women and other groups who have not previously done well under additional State Pensions or been able to use existing top-up schemes

The DWP surveyed 2,000 people last month who were at or close to State Pension age to gauge interest. Around 20% were “very” or “fairly” interested in making extra contributions. It’s used these results to estimate that around 265,000 people will make use of the new top-up scheme.

To work out how much you’ll need to contribute to get the pension you want, head to the State Pension top-up calculator on the Gov.uk website

The existing top-up scheme

Some people are already able to top up their State Pension by making Class 3 Voluntary National Insurance Contributions

These work out at £13.55 a week. The following people can make these additional contributions:

- people living abroad and not working in the country they moved to
- people who are unemployed but not claiming benefits
- married women who cancelled their reduced rate election
- people who are employed but earning under £109 a week and so are not eligible for National Insurance credits
- people who have reached State Pension age (can only pay for the past six years)

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