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Homeowners could buy more state pension

Health minister Paul Burstow says pensioners should be allowed to use the equity in their homes to buy more state pension.

 
Homeowners could buy more state pension

The government could allow pensioners to swap equity in their homes for an increased state pension.

Next year the government will allow those who are retired or retiring before April 2016, when the new flat-rate pension is introduced, to top up their state pension by making additional national insurance contributions (NIC).

They will be able to buy new class 3A ‘stamps’, as they are sometimes known, to receive up to £25 more a week. A person aged 65 will be able to buy £1 a week of extra income for £890, or £25 more a week for £22,250.

For those without a spare £20,000, minister of state for the Department of Health, Paul Burstow, said the government could look at allowing property equity to offset the cost.

Speaking at an International Longevity Centre-UK conference about the creation of a government ‘equity bank’ to help retirees release some of the value in their homes to boost their pensions, Burstow said the idea fitted alongside the plan to allow retirees to purchase more state pension.

‘In 2015 the Department for Work and Pensions will make an offer to pensioners to buy more state pension,’ he said. ‘For those who do not have enough income or spare cash to buy it, there may be some scope for [property] equity to be used…it is not too late to be built into [the] option [of buying more state pension]. It would give pensioners a way of using an asset to buy extra pension.’

Burstow said there was a gap in pension financing and using property equity was just one way to do it.

‘We need to fill the gap between what the state will fund [in retirement] and what the individual will fund to be populated by a range of products that are not there yet,’ he said.

14 comments so far. Why not have your say?

Jollyboys

Jun 17, 2014 at 15:48

By my calculation you have to live in retirement at least 17 years just to get your money back.

If you invested that money (equities/bonds) and took a 6% income drawdown you could probably at least double that £22,250 over 17 years.

2 x £22,250 = £44,500 x 6% income drawdown = £51.34 per week after 17 years

Not £25.00 and no lump sum?

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easy life

Jun 17, 2014 at 16:13

But currently the state pension is covered by a min rise of 2.5% or inflation or average wage rise whichever is the most which makes it better than the average annuity.

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Jonathan

Jun 17, 2014 at 16:31

£22,250/(£25*52) = 17.1

This is better than the rate you'd get from a private annuity firm.

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BritishBlue

Jun 17, 2014 at 17:08

If that is so will we be able to use this facility and tax benefits as a substitute for an annuity?

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Jonathan

Jun 17, 2014 at 17:15

If you can live off £25 per week by all means use it as an annuity but I think you would need it in addition to an annuity.

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BritishBlue

Jun 17, 2014 at 17:27

Or maybe an employers pension etc. If someone had only a state pension and a pension pot of £22,250 it would make a significant difference.

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dandigirl

Jun 17, 2014 at 18:54

If this is a good deal surely it shows just how bad the purchase of an annuity is?

Thank you Steven Webb for allowing us discretion over our pension funds.

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Mark22

Jun 17, 2014 at 20:29

If this is such a good idea, is the reverse not also? I.e. somebody who has a pension pot can use it to invest in their own property (pay down the mortgage, get on the property ladder or whatever) and return it to their pension later in life?

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Victor Lanser

Jun 17, 2014 at 21:19

Mark22 looks right, for those who can do it.

But the gov't proposal feels less generous than i got a few years ago buying added years in State pension for myself and my wife. Admittedly I haven't checked the figs.

Could get a bit complicated for people who've already, or plan to, done equity release for income. Hard to see their ER provider allowing them to cut the asset value of the property.

Jollyboys ignores tax, but could probably use an Isa or two as wrappers.

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GARRY TAYLOR

Jun 18, 2014 at 02:20

This is not right for a small band of folk like me who was told that after 30 years we need no longer contribute, as that entitled you to a full state pension. I therefore stopped paying. Two years later but not law you may need 35 years. Even last year when i called them they could not give me a definate ansawer on the matter. You see the way i see it is that now it is law i should be given the chance to go back and pay each missing year ie five at the class 3 rate. This is approx £700 per year so would be £3500 ish, far different from the amounts they are saying. I stopped paying 7 years ago but there used to be a law which said you can only go back 5 years or so. I done as i needed and don't mind paying the extra 5 years but at the old rates, it was not me who keeps changing the laws. What a state of affairs, more calls to people who will no doubt give me further wrong information. Any ideas from others please.

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John Akerman

Jun 18, 2014 at 10:05

Paul Burstow is not the Health Minister.

He left the Government over a year ago.

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peter hart

Jun 22, 2014 at 11:24

Could you not open an ISA and buy a fund that invests in index linked bonds and then draw £100 month. Use HL or one of the other fund supermarkets. You would at least have access to your money if required.

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DayTrader

Jun 22, 2014 at 22:28

@Jonathan:

+25x52/22250 = 5.84%

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Jonathan

Jun 23, 2014 at 14:35

1/5.84% = 17.1

Which is often how annuity rates are expressed.

So £17.1 will buy you £1 per year income, presumably this is inflation linked in the same way as the state pension (thought it doesn't say).

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