Financial News

  • 27 January 2014, 23:24

Pensions Top-Up Plan Would Increase Pay Out

People in or nearing retirement are to be given the chance to use their savings to top up their state pension.

The new scheme will allow eligible pensioners to pay in lump sums from as little 900.

In return they will see an increase in their state pension by as much as 25 a week.

The offer will apply to all existing pensioners and those retiring before April 2016.

Pensions Minister Steve Webb MP said: "One of the problems for people who have already retired is that their savings are often getting very poor rates of interest.

"What the Government is saying is if people have a bit of capital put by and they want to give it to us in the form of extra Voluntary National Insurance Contributions, we will increase their pension and that will go on for as long as they live, and it will be linked to inflation.

"And if they die and there's a surviving spouse a bit of money will go to them as well.

"It's just a new way of using your savings to boost your retirement income."

The exact amount people will have to put in is to be released later in the year, Mr Webb said.

He has said because women generally live longer, they will get better returns from their contributions.

"Because we charge the same to men and women, and women live longer on average, it will be attractive to many women because they pay the average price for men and women, but they will live longer than the average price," he said.

Pensions expert Michelle McGagh agrees that it could be a huge boost to women.

"Traditionally women have stayed at home, they've had career breaks to raise children so they may not have paid all their national insurance stamps, which means they don't get the full basic state pension," she said.

"By being able to top up this pension, they will also not only get the basic state pension, they may also be able to get a little more depending on how much they decide to put in."

Ms McGagh said thousands of people may be able to take up the offer, but there is a short time frame.

"There's only 18 months to take advantage of the Government's very generous offer," she said.

From April 2016, a flat rate state pension system will be brought in.

It will see all new pensioners paid one rate above the means testing level, equal to around 144 in today's money.

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