Pensioners will be able to purchase state pension top ups as high as £25 each week from autumn next year, as part of a government scheme to compensate individuals who retire before April 2016, and subsequently will miss out on the new higher state pension.
It is currently estimated that hundreds of thousands individuals who are currently aged over 61 will miss out on the new state pension scheme if they retire before April 2016, which will see the weekly amount given to retirees rise to £144.
And the government has looked to assist people such as these by implementing a new scheme from October next year which will enable all who people who are old enough to have qualified for a state pension to top up their pension, though the top up value will be determined by the applicants age and the countryís average life expectancy at the time.
Under current conditions, the new scheme would necessitate that someone looking to receive £1 more on their state pension each week would have to pay £890, whilst someone older, such as a 75 year old, would pay a lower £674 for an equivocal top up amount.
In order to qualify, men will have to be born before the data 6th April 1951, whilst women will have to have been born prior to April 6th 1953. The government expects the new measure to assist 265,000 people bolster their pension pots, and pre-registration is available later this month.
The new top up system will function by enabling pensioners to spend on a new type of voluntary national insurance entitled ìclass 3Aî.
Detailing the measures, pensions minister Steve Webb said: “This is another bold action in how we build a stronger economy through choice in retirement income. The scheme will give them a guaranteed, index-linked return and will be particularly attractive for women pensioners who will draw the higher pension for longer.
“It will also help the self-employed, who currently qualify for only the basic state pension.”
Moreover, the top ups can be passed on to surviving family members if the pensioner who spent the money on it prematurely dies, though only 50% can be inherited, and only by the personís partner
However, questions have arisen about how useful the scheme will actually be for pensioners, and whether it provides good value for money for those who part with large amounts of cash for small weekly top ups.
Laith Khalaf, head of corporate research at financial services provider Hargreaves Lansdown argued that the scheme is highly attractive in its provisional form, when compared to other methods of bolstering a pension pot, such as an annuity.
He said: “This top-up scheme looks pretty generous compared to buying an annuity from an insurance company. It is an olive branch from the government to those who retire before the new single-tier state pension is introduced in 2016.
“The scheme offers pensioners another option for putting their savings to work, which will be particularly welcome given today’s low interest rates on cash held in the bank.”
He did however highlight that the extra income would be taxed, and that this could mean that ìsome savers should pause to consider whether an Isa may be a better, more flexible home for their money”.
The news comes during a time of huge changes within the pension landscape in the UK, with Chancellor George Osborne recently announcing new plans for a pensioner bond to be released from National Savings and Investments
He also revealed changes to the way people can access their pension pots in his latest Budget, which will enable people to have a higher degree of freedom in the amount they can access on a yearly basis.
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