Pension ‘top up’ introduced
From 12 October 2015, eligible individuals will be able to begin topping up their state pension by up to £25 per week.
The lump sum payments, known as ‘class 3A voluntary contributions’, can be made up until 5 April 2017 by those that are entitled to a basic state pension before 6 April 2016. For men this means those who were born before 6 April 1951, while for women the relevant date of birth is before 6 April 1953.
An example of how pension top ups will work:
A 68 year old individual decides to put an extra £5 a week into their pension, which equates to £260 a year. Because the cost of an adding an extra £1 for a 68 year old would be £827, the individual must multiply £827 by 5. The lump sum payment here is £4,135.
The reason for the introduction of the pension top up option is that the new state pension system which starts in April 2016 is expected to provide a more generous income than the current system.
Pension boosting strategies
Topping up your pension is not the only way to potentially boost your pension income when you retire.
While you can top up your basic state pension pot, there is also the option to start another pension pot and begin contributing to that. Your existing contributions to your workplace pension can also be voluntarily increased.
The second main option is to defer your pension. What this means in practice is that you agree to delay the date that you start taking your retirement income. This can have a number of advantages, chiefly that it allows you more time to contribute and that annuity rates may increase over time.
Contact us today if you would like to talk about retirement planning.