Additional State Pension Top Up 2015
Published / Last Updated on 14/06/2015
Additional State Pension Top Up 2015
The Department for Work and Pensions (DWP) confirmed in April 2014 that pensioners that have taken their state pension before April 2016 (when the new flat rate state pension starts) will have the ability to top up their existing state pension.
Why are they doing this?
The Basic State Pension maximum for 2014 currently stands at £113.10 per week. With the average femaie receiving around £109 per week and the average male £141 per week (source DWP)
The New Flat Rate, which is due to commence in April 2016 is proposed to start at £144 per week where you have a full 35 year National Insurance Contribution record.
This means that those that have already reached state pension age before 2016 may receive a lower state pension than those that retire afterwards, although they could still be receiving additional state pension top ups such as the Old Graduated Pension Scheme, SERPS (State Earnings Related Pension Scheme) and S2P (State Second Pension).
When can I top up?
The DWP has proposed to make the scheme available from October 2015.
What are the costs?
The DWP has set out costs below: For example a man or woman aged 65 would have to pay a lump sum of £890 to receive an additional £1 per week state pension top up.
The maximum you can top up by is £25 per week. For a 65 year, this would cost £22,250.
We have added our own figures in the table to illustrate what the break even point is. Or in layman's terms, how long would you have to live to break even and get your money back. (Our figures have been done without an adjustment for inflation increases in payment, because you will have invested all on day 1, i.e. the spending power was greater when you first invested than it would be after 5 years of drawing the pension - so we believe it offers a fairer picture of what a real break even point would be assuming no inflationary increases or adjustments either way).
Value for Money?
We suggest this is not a give away by government but it is tempting. The effective annuity rate is around 5.8% for a 65 year old. This is competitive given that the state pension scheme is also index linked so an equivalent annuity bought on the open market would cost you double with an annuity rate of around 2.5% - 3.0%. So the cost for the state pension top up is half what you would pay on the open market. Not forgetting that the state pension is fully taxable, whereas if you pay into a private pension, you receive tax relief on the contribution and part of the pension fund could be withdrawn as a tax free sum. So, it is not all black and white. If you have good health, if your bloodline has good longevity and if you live long enough then yes, the state pension top up is good value.
We believe this is also about government looking for cash inflows to tackle public sector debt, effectively borrow today, pay back tomorrow but gamble that many people die before breaking even and in the meantime, keep banking our National Insurance contributions (which have not been reduced) that used, in part, to fund our additional State Second Pensions (SERPS/S2P) that have now disppeared for people in their 50's and below despite us all continuing to pay the same NIC rates.
The additional contributions are known as Class 3A Voluntary National Insurance Contributions.
Age at payment date (October 2015 to April 2017) | Rate (£) for each additional pension unit of £1 per week | Cost for £10 per week top up | Cost for £20 per week top up | Cost for £25 per week top up | Estimated Break Even Point (Years) - straight line calculation with no inflation adjustment |
63 (women only) | £934 | £9,340 | £18,680 | £23,350 | 17.96 |
64 (women only) | £913 | £9,130 | £18,260 | £22,825 | 17.56 |
65 | £890 | £8,900 | £17,800 | £22,250 | 17.12 |
66 | £871 | £8,710 | £17,420 | £21,775 | 16.75 |
67 | £847 | £8,470 | £16,940 | £21,175 | 16.29 |
68 | £827 | £8,270 | £16,540 | £20,675 | 15.90 |
69 | £801 | £8,010 | £16,020 | £20,025 | 15.40 |
70 | £779 | £7,790 | £15,580 | £19,475 | 14.98 |
71 | £761 | £7,610 | £15,220 | £19,025 | 14.63 |
72 | £738 | £7,380 | £14,760 | £18,450 | 14.19 |
73 | £719 | £7,190 | £14,380 | £17,975 | 13.83 |
74 | £694 | £6,940 | £13,880 | £17,350 | 13.35 |
75 | £674 | £6,740 | £13,480 | £16,850 | 12.96 |
76 | £646 | £6,460 | £12,920 | £16,150 | 12.42 |
77 | £625 | £6,250 | £12,500 | £15,625 | 12.02 |
78 | £596 | £5,960 | £11,920 | £14,900 | 11.46 |
79 | £574 | £5,740 | £11,480 | £14,350 | 11.04 |
80 | £544 | £5,440 | £10,880 | £13,600 | 10.46 |
81 | £514 | £5,140 | £10,280 | £12,850 | 9.88 |
82 | £484 | £4,840 | £9,680 | £12,100 | 9.31 |
83 | £454 | £4,540 | £9,080 | £11,350 | 8.73 |
84 | £424 | £4,240 | £8,480 | £10,600 | 8.15 |
85 | £394 | £3,940 | £7,880 | £9,850 | 7.58 |
86 | £366 | £3,660 | £7,320 | £9,150 | 7.04 |
87 | £339 | £3,390 | £6,780 | £8,475 | 6.52 |
88 | £314 | £3,140 | £6,280 | £7,850 | 6.04 |
89 | £291 | £2,910 | £5,820 | £7,275 | 5.60 |
90 | £270 | £2,700 | £5,400 | £6,750 | 5.19 |
91 | £251 | £2,510 | £5,020 | £6,275 | 4.83 |
92 | £232 | £2,320 | £4,640 | £5,800 | 4.46 |
93 | £216 | £2,160 | £4,320 | £5,400 | 4.15 |
94 | £200 | £2,000 | £4,000 | £5,000 | 3.85 |
95 | £185 | £1,850 | £3,700 | £4,625 | 3.56 |
96 | £172 | £1,720 | £3,440 | £4,300 | 3.31 |
97 | £159 | £1,590 | £3,180 | £3,975 | 3.06 |
98 | £148 | £1,480 | £2,960 | £3,700 | 2.85 |
99 | £137 | £1,370 | £2,740 | £3,425 | 2.63 |
100 | £127 | £1,270 | £2,540 | £3,175 | 2.44 |