State pension top up? New option if reaching retirement age
There is a group of people already retired or almost at retirement age who have lost out in the pension changes to the state pension recently announced by the Government.
If you are in or nearing retirement you will be given the opportunity to ‘top up’ your state pension. This could potentially be in the region of hundreds of pounds a year.
In the Autumn Statement 2013, George Osborne revealed plans for a scheme designed for existing pensioners and those retiring before April 2016 to increase the pension they do, or will, receive from Government. This group is missing out on the introduction of the more generous single tier state pension which will be introduced in 2016.
State pension benefits are currently split into two main elements, viz;
Firstly, thirty years of National Insurance contributions or credits are needed to qualify for the full basic state pension of £110.15 a week.
Secondly, it is possible to build up an entitlement to another element, an earnings-related pension currently known as the state second pension, which could total as much as £163 a week.
Under the new scheme, from October 2015, eligible pensioners will be able to pay a new class of voluntary National Insurance contribution which will boost the amount of state second pension they are entitled to receive.
According to pensions minister Steve Webb, pensioners are likely to be able to buy up to £25 a week in additional pension. The state pension top up proposed will make a meaningful difference to those on low incomes.
Although full details of the scheme are yet to be confirmed, it is known that there will only be a limited window of time in which contributions can be made.
The Government says the scheme will prove particularly helpful to the self-employed and women who may have gaps in their National Insurance record from taking time off work to raise a family.
I think this is commendable. The Government has recognised that proposed changes in legislation will have an adverse impact on a specific group of people and has moved to make special provision for them to have a state pension top up. I’m sure that for many people on low incomes it may make a dramatic difference.
But what if you are trying to generate a prosperous retirement? Does adding £25 a week make a meaningful difference? Most likely not. If it was an additional £250 a week it might begin to change your life.
So the moral of this is simple… don’t expect the Government to provide more than a safety net to avoid serious hardship. That’s a long way from being able, in retirement, to do what you want when you want!
The key is self-help, taking control and making good decisions. I hope my blog helps you do just that.