State Pension Top Up

BlueView_2

I've just visited the government calculator .
I really can't see many people topping up their state pension at the requested amount as the returns are quite feeble.
For me to get an extra £25 a week (£1300 a year) I would need to pay in £20,000 next year when I'll be 68.
Except I wouldn't receive £25 a week as income tax would reduce it to £20 a week (£1040 a year) as I have another pension of £3,000 a year of which I already pay 20% tax.
I know the state pension moves up with inflation, but my quick calculation suggests that if I instead placed £20,000 in a building society paying 2.5% after tax, then I could live on that for 18 years by taking £1040 (+ inflationary annual changes) every year.
So, the break even point is 86 years old.
If I die between 68 and 86 then HMG rub their hands in glee.
If I live to about 90 then I am in profit for a couple of years.
My conclusion is that the State Pension Top Up will be of little or no interest to pensioners who would prefer to have their own cash.
The only way it would be worthwhile is if the initial handover of cash was about HALF of their suggested amount.

greenglide

You plan to get how much from a cash deposit in a building society?

Have you looked at annuity rates recently? How much do you think an inflation linked annuity would cost? Joint life with 50% for survivor?

May not be brilliant but for a guaranteed amount not at all bad (yes I know the inflation link isn't absolutely guaranteed evermore).

Jaycee_Dove

In the other threads discussing this on here consensus seems to be that deferring is a much preferred option.


If you only get the basic pension and defer for 2 years you will get £25 pw added on without you having to pay over any capital from savings - just forego your SP for those two years.


It is not far short of twice as cost effective as paying the government £20,000 of your savings.


If you have these, use them to defer and get the 10.4% rate that is on offer, which will halve for those under the new flat rate rules post April 2016. So they obviously realise that deferment is a great deal and one the government do not want to continue.

BlueView_2

I plan to get 2.5% tax-free from several 5 year fixed rate BS accounts.
Remember, greenglide, I only will be taking just over £1000 a year so that leaves £ 15,000 that won't be needed for 5 years.
I can assure you that 3% interest before tax is very possible in a fixed 5 year account