From 12th October, men born before 6th April 1951 and women born before 6th April 1953 can now top up their State Pensions.
In exchange for a cash lump sum, you can receive up to an additional £25 per week on top of your existing State Pension, even if you are already in receipt of the maximum.
There is a time limit to apply for the State pension top up which is before 5th April 2017.
Is it good value for money?
The answer to that will depend entirely on your circumstances, including your age, your health and life expectancy, and the age, health and life expectancy of your spouse.
Once you pay a cash sum for additional State Pension, you will receive an income for life in exchange, and on your death, your spouse will receive a spouse’s income of 50% for the remainder of their lives.
The cash sum you exchange for the additional lump sum will be lost on death of you or your spouse (whichever comes later), so on the death or you or your spouse, there would be no return of fund, and the purchase may have been poor value depending on how long you both live for. So those who will gain will be those who live for a long time.
How much does it cost?
The cost will depend on your age. You can buy up to a maximum of an additional £25 per week. If you are a male aged 65, the cost will be £890 for each weekly £1 of income, so the total cost for £25 per week of income would be £22,250. The cost decreases the older you are; for an 81 year old the total cost for £25 per week of income would be £12,850, and at age 100 it would be £3,175.
It’s important to remember that like ordinary State Pension income, the top-up State Pension will be taxable. But if you’re already a non-taxpayer, you may be able to receive the income tax-free.
Topping up the State Pension won’t be for everyone. Alternatives to topping up could include simply drawing down income from your cash accounts, ISA accounts, or possibly by making additional pension contributions (which attract tax relief) and drawing down pension income or purchasing a product like an annuity.
In summary, before making any decision, the key considerations should be, how much extra income do you need, your life expectancy, your tax situation, and how much risk are you willing to take with your capital in order to achieve the income you want?
Our financial advisers will guide you through all of the options and will advise on and what is right for you based on your circumstances and attitude to risk.
Arrange a consultation meeting today by calling 01244 539595.
Important information about your pension annual allowance if you earn over £150,000 a year.
