The Government has revealed plans to allow pensioners to top up their State Pension by as much as £25 per week.
Pensioners will be able to boost their State Pension by up to £25 per week, even if they’ve already retired, the Pensions Minister, Steve Webb, has announced.
The scheme, which will be index-linked, will allow pensioners - both those already drawing a pension and those due to retire before April 2016 - to increase their weekly earnings.
Pension increase
The plans will make it possible for those approaching retirement to make lump sum payments of anything from around £900 to a maximum of £25,000.
For every £900 added to the total State Pension pot, on average around £1 will be added to the weekly State Pension payment, although exact figures are yet to be confirmed.
As women live longer, the scheme should be particularly beneficial as they will be able to get a better return on any money they put in. Many women may have also missed out on the full State Pension allowance because they’ve taken time out to have children, meaning they may not have paid in enough in National Insurance contributions.
Self-employed workers, who currently only qualify for the Basic State Pension, will also benefit.
[SPOTLIGHT]The new scheme is expected to be introduced next year. The Government will create a new class of voluntary National Insurance contributions known as ‘class 3A’ for it.
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A generous offer
Webb said those who are eligible for the scheme may want to put off spending on a new car, or extended holiday, as it may prove more beneficial to put that money towards bumping up your State Pension.
Tom McPhail, head of pensions research for Hargreaves Lansdown, points out in the current open market, to get an extra £1 a week income on an inflation-linked single life annuity for a 65-year-old would cost around £1,468. On those terms, the Government's scheme is relatively generous.
"These ideas suggest that there is a bit of a rethink going on, with the Government willing to offer more generous State Pension foundations, on top of which private pension savings can then be built. In principle the terms offered by the Government for these additional State Pension deals look very attractive," McPhail adds.
The current top-up system
At the moment it's possible to pay in voluntary National Insurance payments if you’ve not racked up enough of the 30 qualifying years needed for the full Basic State Pension. The amount you get back in your pension pot depends on the year you want to pay for.
You can also make voluntary payments, but only certain people are eligible to do so, such as those who are employed but earning under £109 per week and not eligible for NI credits, and the self-employed with profits under £5,725 and a ‘Small Earnings Certificate’.
For more information on increasing your State Pension read How to top up your State Pension.
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