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Govt to announce £25 a week state pension boost

The Government will confirm details of a scheme to allow existing pensioners to boost their state pension entitlement by up to £25 a week in the coming weeks, the Daily Mail reports.

Under the plan, which was outlined as part of the Autumn Statement in December, anyone who has reached state pension age or will do so by April 2016 will be able to pay between £900 and £25,000 to top up their pension.

The Mail says the Government will increase peoples’ weekly state pension by around £1 for every £900 paid in. The DWP refuses to confirm this figure but says pricing will be published “in due course”.

Speaking at a Headlinemoney event last week, pensions minister Steve Webb said the scheme will be particularly beneficial to women.

He said: “I’ve had pensioners say to me, ‘I’m getting a lousy return on my savings, Steve, please can I give you my money?’ And I felt I had been saying no for too long.

“The basic proposition is they give us their money, we ask the Government actuary what that equates to as a flow of income and from a Government point of view that is a neutral transaction.

“It seems to me this is especially good news for women as we will have to choose a unisex price but obviously the woman on average will get a pension for longer than a man and couples who have some capital between them may well want to use that capital to boost the woman’s pension as on average they are less likely to be a taxpayer than a man.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “On the open market, an inflation linked single life annuity for a 65 year old currently costs £1,468 for each £1 a week of income.

“This suggests that the Government may be offering this new scheme on very generous terms.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. If Tom McPhail is correct, then pensioners who can afford to top up will be getting an extraordinarily good deal.

    Subsidised, presumably, by pensioners who can’t afford to top up and therefore stay on a lower basic pension – and us tax payers who will retire after April 2016.

    I’m guessing there’s an election in the offing….

  2. Whilst in theory this sounds good, my concerns would mirror those raised historically in respect of NS&I in that the private sector provision would appear to face a competitive disadvantage…

    Having said that, it will be interesting to see precisely what is proposed and the terms, conditions etc given the current state of cash deposits etc.

  3. So at £900 to increase your pension by £1.00 per week it will take 17 years and 4 months to break even (unless of course the government is going to take the top up into account when calculating for the percentage increase each year but even that is offset by the loss of use of your funds) doesn’t look that great to me. If interest rates return to anything like normal it will look even less generous.

  4. @John Lacy

    What’s the difference between this and a client that has the option of added years? Controlling for income of course.

    Also as far as interest rates in the future go, our clients pay us to make a judgement based on the information to hand.

  5. I presume that the paid in amount will not be tax deductible but the increased pension will attract tax. Pensioners with other sources of income will need to pay at least 20% on their increased pension. Dosn’t look very promising.

  6. When Steve Webb refers to a neutral transaction did he factor in the running costs of the staff, their salaries, their DB pensions, the share of the office space and equipment etc? If not then its taxpayer subsidised not cost neutral.

  7. April 2016 is when the new flat rate pension is being introduced with many people not going to be eligible. As the election gets nearer the Government do not want this to be an issue, hence this idea, yet another by Steve Webb.
    So what appears is a good idea is a solution paid wholly by the employee and the Government will get more tax on the income payments. What they should have done was to give everyone a flat rate pension and by all means then give the opportunity of topping up. This idea is totally unfair to those that will not be receiving a flat rate pension, after all we have all paid our National Insurance contributions, some more than others prior to the 30 year rule being introduced. I would say stop playing politics with people’s pensions.

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