Less than two months to top up your State Pension

If you reached State Pension Age before 6th April 2016, then please read on;

The ability to top up your State Pension was announced in the December 2013 autumn statement and received a good level of publicity, but with so much going on with pensions over the last few years, this opportunity has (for many) got lost in the myriad of pension “noise”.

WHAT’S THE DEAL? : You'll basically be exchanging a cash lump sum for a boost to your weekly state pension, as long as you do it before 6th April 2017. The longer you live, the better value it represents. So, someone aged 65 who pays £22,250 (this is the maximum amount you can pay) now, to receive an extra £1,300 a year would need to live beyond 80, to get your original investment back. On the face of it, that’s not a bad deal. According to the Office for National Statistics, the average life expectancy for a man currently aged 65 is 86, and for a 65-year-old woman it’s 89. The minimum top up available is £52 a year.

The returns are comparable with an index-linked, joint-life annuity available on the private market, but at better rates. Because the deal is the same for males and females, it’s likely to be attractive to women, because statistically women still live longer than men.

It’s also worth noting that the cost of topping up falls as your age increases, so, for a 70-year-old, an extra £25 a week (or £1,300 a year) costs £19,475, for a 75-year-old it’s £16,850, and for someone aged 80 it costs £13,600. A major attraction of this scheme is that the income is protected against inflation, and the top-ups can usually be inherited by your spouse or civil partner (reduced by 50%).

FIND OUT MORE; via Gov.uk: topping up your state pension.

CARE NEEDED; The Department for Work and Pensions states that making good any gaps in National Insurance records might be a better route than the State Pension top up (although both can be made). Please remember that State pension income is taxable as income, so it’s worth checking to see if this is the most appropriate option, given your position i.e. an ISA may be more effective. It’s also a better deal for non and basic rate tax payers (so, lowest income spouse should probably top up first). Lastly, it may also affect any income-related benefits you receive now or in future.

Frazer Wilson
Senior Consultant 

Opinions, interpretations and conclusions expressed in this document represent our judgement as of this date and are subject to change. Furthermore, the content is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or a solicitation to buy or sell any securities or to adopt any investment strategy.

Thomas Miller Investment is the trading name of the businesses in the Thomas Miller Investment Group. This note has been issued by Thomas Miller Wealth Management Limited which is authorised and regulated by the Financial Conduct Authority (Financial Services Register Number 594155) and is a company registered in England, number 08284862