Further details have been published of a time-limited opportunity for pensioners to make extra national insurance contributions (NICs) on top up their state pension.
The scheme was originally announced as part of the Autumn Statement on 5 December last year and Budget 2014 confirmed that it would be open for 18 months from October 2015 and would be available to everyone reaching state pension age before 6 April 2016, when a new, single tier, state pension will be introduced.
It said: “This will help pensioners with savings who want to boost their state pension income in a way that protects them from price inflation. It could particularly benefit those with gaps in their additional state pension record, such as the self-employed and women who have taken time out from work to raise children.”
The Department for Work and Pensions (DWP) released further details of the scheme on 2 April, setting £25 per week of extra pension as the maximum additional amount of pension that can be purchased, paid on top of the basic state pension and additional state pension (S2P or Serps).
The DWP said: “The state pension top-up has been set at an actuarially fair rate that ensures that both individual contributors and the taxpayer get a fair deal. As an illustration, the contribution required for an extra £1 pension per week for a person aged 65 is £890.
“This means that for £4,450, the individual could receive an additional £260 per year for life, increased in line with prices and inheritable on death in the same way as existing additional state pension: with a minimum of 50 per cent for the surviving spouse or civil partner. For a 70-year-old the rate reduces to £779 and at age 75 the rate is £674.”
When the initiative was first announced, the DWP said that people eligible to make the voluntary contributions – known as Class 3A contributions – would need to carefully consider whether it was right for them to do so.
It said: “For some people, who want the security of an increase in their regular pension income, with safeguards around inflation protection and inheritance and paid directly by government, it may represent a good investment.
“But for other people, the security of having access to their capital – to meet living expenses, for a rainy day and for forming part of their estate – is more important.”