State Pension Top-Up

07 March 2017

image of a clock showing 5 to 12

STATE PENSION TOP-UP: APPLY BY 5 APRIL 2017

State pension top-up enables individuals, who reached State Pension age (SPA) before 6 April 2016, to boost their State Pension income by an extra £1 to £25 a week in return for a lump sum contribution. The extra amount is guaranteed for life, protected against inflation and, in most cases, inheritable by a spouse or civil partner. Applications for a top-up must be made by 5 April 2017.

In more detail

The Government acknowledges that many people who reached SPA before 6 April 2016 under the old State pension may feel they have lost out. In recognition of this, it is offering these people the opportunity to buy additional State Pension. This was originally known as Class 3A National Insurance, but is now called State Pension top up.

State Pension top up enables individuals to boost their State pension income by an extra £1 to £25 a week in exchange for a lump sum payment. The extra income is guaranteed for life, increases in payment in line with the Consumer Prices Index, and, in most cases, the spouse or civil partner can receive a pension of between 50% and 100% of the top up pension payment after the individual’s death. This will be payable once the spouse or civil partner reaches SPA, if they haven’t already reached it.

The cost of the top-up depends on how much people want to add to their State Pension payment. The costs rise depending on how much they want.

The cost is also affected by how old an individual is when they make the payment: it falls as their age increases. There is no age limit for applicants, which means it may make sense to wait until their next birthday before making the payment. Once the DWP has the payment, the higher pension amount will be payable from that date.

Examples

  • You were born on 1 October 1950 and you decide that you want to receive an extra £5 per week of pension. You will make a lump sum payment of £4,355.
  • You were born on 1 October 1940 and you decide that you want to receive an extra £5 per week of pension. You will make a lump sum payment of £3,230.

The DWP has an online calculator which calculates how much each pound of State Pension top up will cost. The calculator can be accessed here. Applications can be made to DWP online or by telephone.

Is it right for everyone?

Whether the State pension top-up is the right option depends on an individual’s personal circumstances. It is worth looking at what else is available to boost retirement income before applying for the top-up.

If individuals do not have the full number of years of National Insurance contributions required to receive the full basic State Pension, they may be able to increase their State Pension by making voluntary National Insurance contributions. It’s worth doing this before making a State Pension top up payment. This way they can fill in gaps in their National Insurance record. They can still make a State Pension top up contribution afterwards.

State Pension top up is taxable as income, so people should check how much they would receive after tax. It may also affect any income-related benefits that people receive now or in the future.

What next?

If you have individuals who may be interested in the State pension top-up, JLT can help by providing appropriate communication material or delivering presentations to your employees at your workplace.

For further information on the issues discussed in this article, please get in touch with your usual JLT contact, or for information on communication options contact David Millar at david_millar@jltgroup.com.

This article does not constitute advice.