State pension top ups now available!

You may have read about the changes in State Pension that take place for those reaching State Pension age after 5th April 2015. The State Pension will not be worse for those reaching State Pension age after 5th April, and in many cases it will be significantly better.

In order to give those who have already become entitled to receive their State Pension before this date the chance to increase their State Pension a ‘top up’ is available by making Class 3A National Insurance contributions. Generally speaking the level of pension payable is attractive for those in good health and extended life expectancy within the family history. It also tends to be a better deal for those who are married as the surviving spouse will receive 50% of the pension. Future inflation also has an impact as the pension is indexed in line with CPI.

The table below gives an indication of the cost of an additional pension of £25 per week and how long you need to live for to get your money back:

Age Attained Cost (£) Age required to enable a return of capital net of 40% income tax Age required to enable a return of capital net of 20% income tax Age required to enable a return of capital net of 0% income tax
65 £22,250 87.5 83 80
70 £19,475 90 86 83
75 £16,859 93 89 86.5
80 £13,600 95 91.5 89.5
85 £9,850 96 93.5 92

Notes: * The pension of £25 per week is assumed to increase by 2% per annum which is in line with the Bank of England’s long term target of 2% per annum for CPI (Consumer Price Index).

In the first instance you would need to obtain your National Insurance record as you will need to check with DWP which is the most cost effective route.

If you would like to discuss this with regard to your own personal circumstances then please contact Andy Gait on Andrew.gait@gouldfp.com