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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
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
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