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Retirees could buy up to £25-a-week of extra state pension

The government will offer those retiring before April 2016 the chance to top up their state pension.


by Michelle McGagh on Dec 10, 2013 at 13:52

Retirees could buy up to £25-a-week of extra state pension

People retiring before April 2016 will be able to purchase up to £25-a-week in extra state pension by topping up their national insurance contributions.

The government used the Autumn Statement to announce its plans to allow current pensioners and future pensioners, who retire before April 2016 and will miss out on the more generous single-tier state pension, to boost the amount they receive from the state.

Pensioners will be allowed, temporarily, to back fill gaps in their national insurance record and buy extra ‘state second pension’ (S2P) which is effectively an additional state pension and used to be known as the ‘state earnings-related pension scheme’ (Serps).

Speaking at a dinner at the House of Lords, pensions minister Steve Webb said pensioners would be encouraged to top up their national insurance record at the subsidised rate currently offered by government and then, if they wish, they can buy extra pension through a new 3A class contribution but the rate will not be subsidised.

Currently, the government charges £705 for a full year of contributions and in return pensioners receive an extra £190 a year until they die.

Webb said the price for the extra S2P contributions had not been set yet but pensioners could possibly buy up to £25-a-week in extra pension.

‘You can fill gaps in your national insurance record and you can turn your savings into a return from the government,’ said Webb. ‘This is being temporarily introduced from October 2015 for those who reach pension age before the single tier state pension is introduced.

‘This is a neutral policy, it is not a bung or a revenue raiser. I would say first of all buy back what you can through the subsidised route and then buy [top ups through the new scheme].’

Workers who ‘contracted out’, a process that allowed them to divert a proportion of national insurance payments into their private pension and receive less from the state, will be able to use their pot of contracted out money – known as ‘protected rights’ – to buy extra state pension, Webb confirmed.

‘This is extended Serps,’ he said. ‘People who contracted out and have a contracted out pension pot could use that pot to buy back their pension.’

Webb added that self-employed people would also be able to make use of the offer and that women were likely to benefit most because they are more likely to have gaps in their national insurance record and are less likely to have enough income to pay tax in retirement.

For more on the Autumn Statement: see our 'winners and losers' gallery

17 comments so far. Why not have your say?

Graham Barlow

Dec 12, 2013 at 10:40

Being a trustee to a company Pension fund way back in 1984/6 I investigated the option to opt back into SERPS. At the time the Govt were giving bonuses on past NI contributions to opt out and buy a private personal Pension in the market. There was a stampede to leave SERPS. WE went back in after much research. To buy what we all achieved upon retirement would have cost 3 times as much from the Insurance companies. . In many cases 25% of the average of your 20 years highest earnings. This was achieved by vigilance and constant reappraisal of the Pension fund position by the Trustees. We could have easily missed that opportunity which has paid off handsomely. Never pass up the opportunity to divert some of your Pension pot into bargain buys being offered by the Government, like the opportunity to buy up an extra £190 per annum for a one off £708 . An extra £25 per week for just under £6 grand is a collosal yield impossible from the annuity market. Go for it without hesitation, and make sure it is a contract they cannot change like they tried to under SERPS.

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Barbara Davies

Dec 12, 2013 at 11:06

Will they include the women who paid reduced-rate contributions. So far they have been excluded from methods of being able to make up their pensions. It is time this was rescinded and they were given the same chance as anyone else.

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Bryan Jefferson

Dec 13, 2013 at 21:09

Graham, I'm not sure I follow your arithmetic on this. Surely you are not equating £190 a year with an extra £25 per week? In the likely event this is not what you meant, could you please explain where the figures of £25 a week and £6K came from?

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Dec 15, 2013 at 13:25

Having just retired and worked since I was 16, (looking forward to my first State Pension payment on Tuesday) I find it difficult to accept a situation where those who did not will soon suddenly be entitled to around £144 per week and I will not. Similarly, my wife who was born on 6/5/52 is having to wait an extra 27 months to receive her pension and yet those born after her, e.g. between 6th January 1954 and 5th September 1954 will wait a maximum of 18 months. The various pension Bills were and are full of anomalies.

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freda brown

Dec 15, 2013 at 15:46

I had my first child in 1976 - why am I not entitled to NI credits for 1976 and 1977 tax years. As well as not receiving child benefit, no maternity leave or any possibility of child care at that time, is this really suppose to be fair?

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Laurie Ventour via mobile

Dec 15, 2013 at 18:29

Maybe BJ is confused because GB's estimate of 6K is high. Back to school-pupil arithmetic: If you want 190 p.a., you pay 705 one time. So if you want 1300 (25x52 max) you pay 705x1300÷190~4824 (and that's

approximate too as GB may have factored in some other costs!). - LLV

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Dec 15, 2013 at 22:46

Brian Stewart - Those born after 6th Jan 1954 have more than an extra 18 months to wait. You can check it on the HM Revenue online pension age calculator.

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Dec 16, 2013 at 09:48

This is a neutral policy, it is not a bung or a revenue raiser


What a liar. It's not neutral.

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Gil Dines

Dec 16, 2013 at 10:26

My wife is 60 on 24.06. 2014 next year. instead of retiring after working all her life since leaving school her new date for leaving work with a pension is 24.03.2020

How many firemen, politicians or civil servants lose £25000+ and work an extra six years

Thank you Cameron just remind me how we are all in this together

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Dec 16, 2013 at 10:33

It's not Cameron. It's been going on for years. For the civil service and state pension the current value of the pensions debts is 7,000 bn. Even that's an underestimate.

So if you're owed money for the above, you're going to be disappointed.

The state has hidden the debts off the books for years, and spent all the contributions.

For example, under Labour between 2005 and 2010, those debts increased at 734 bn a year. Total taxes now only come to 600 bn.

The state's bust. We are in it together. We aren't going to get paid.

However, some are more equal than others. You've pointed out the biggest losers.

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Graham Barlow

Dec 17, 2013 at 15:05

Bryan Jefferson. No advanced finacial mathematics here just plain old arithmetic. A Pension enhancement of £190 per year will cost you £705. The max you can get is £25 per week or approx £1300 p.a. Divide 1300 by 190 equals near enough 8 £705 X 8 is near enough £6000 . Worth paying up this amount to obtain £25 per week, as £6000 buys you next to nothing on the annuity market.

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Dec 17, 2013 at 17:49

Quite. And that's why Steve Webb is lying when he says its revenue neutral.

I would be careful. It's just like any Ponzi fraudster getting money in to keep the Ponzi going.

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Dec 17, 2013 at 19:52

May 2014 reach 65.

State Pension Entitlement = Basic £114 PW.

Re: proposed Extra Pension Pension Purchase in Chancellor's Dec. 2013 Statement of particular benefit to self-employed. So I buy 8 x £707 = £5656. That in turn will buy £25 PW extra pension on top of my basic self-employed entitlement.

Yes, I would be foolish not to purchase this, and the £5656 is sat waiting now. But I'd like to know how soon I start receiving the payments after I've handed over the lolly !!

But my wife who is entitled to State Pension in just over 4 years and has also been self employed all her life will receive the new rate of pension without any additional purchases! Whilst I am obviously pleased about the latter, it still poses a scenario of complete unfairness. Those already receiving Pensions or due to receive Pensions before the change-over date who have savings that cancel out any chance of top-ups under the present system have been very, very badly treated indeed.

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Financial Mug

Dec 23, 2013 at 12:30

Appreciate Graham Barlow's take on why £ ~ 6k would be a bargain to buy £25 a week's pension top-up. But am still unsure, like Brian Jefferson earlier, whether Graham is making a mistake in thinking that the Class 3A formula will be the same as the current subsidised rate (Class 3?) to purchase extra years to make up lost ones. That is why the Pension Minister advises first using up the subsidised Class 3 according to entitlement before going into the non-subsidised Class 3A. The Treasury is still to announce what the non-subsidised formula, the 'cost-neutral', will be. That is why I wonder whether Graham Barlow's use of the Class 3 formula to be true also for 3A is in error. Wishfully, would much prefer Grham's take to be true!

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Laurie Ventour via mobile

Dec 23, 2013 at 15:34

Moderator, I wish that you had printed my more accurate and simpler explanation to BJefferson than GBarlow's on the latter's overstated £6k.

Try as I may, I cannot make the outlay more than £4.825k (<£5k) to purchase the maximum permissible £1,300 p.a. That's because 1300 divided by 190 is nearer 7 (6.9) than 8. And 7x705 =4,935. Barlow's figure could be misleading to persons whose decision may be on the margin. But be that as it may, we can all agree that whether it is 5k or 6k it's much better value than a commercially purchased annuity.


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White Stick follower

Mar 20, 2014 at 18:13

@Graham Barlow. Whilst no doubt your figures may be right, according to my calculator 1300 divided by 190= 6.84, whilst 705 X 8 = 5640. £25 per week would yield 1300 as you say.

According to Michelle McGagh the cost of an extra £25 per week for life would be £22,250, so I am afraid an old soul like me does not follow the arithmetic. At 72 & on Full State Pension I cannot add anything to my own pension, but my wife,almost 70 and on only a much reduced SP of around £62pwk could buy quite a bit more. So clearly I do not understand something, somewhere.

So for the benefit of a simple country boy like me who is now confused can you explain how the figures correlate? Does the deal for £25pwk cost £6K or £22,250. If the latter then Michelle's figures and projections based on a further 20 year life do not seem to add up or produce much of a deal taking into account lost interest on capital, but ignoring inflation.

Any increase in SP will of course impact on the tax liability of any pensioner with another source of pension, so the Treasury will get some of its money back. Generally anything advertised by the Government as good for the taxpayer is totally the opposite.

Also BTW I am interested in her article where it said that you could pass on 50% of the pension to your spouse. It is my understanding that the Gov't quietly broke that link in the last Budget- a point confirmed by my Financial Advisor, so how does the 50% get passed on?

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Mar 20, 2014 at 18:19

If I thought that it would cost me £5656 to get an extra £25 p.w. I would be raiding our meagre savings to purchase the benefit for me and my husband. However, I am reading the figure of £22500 to make the will, unfortunately, be forced to carry on surviving on our current handouts (paid for over many more than 30 years) with no prospect of any rise in income.

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