State Pension Top Up

jamesd

Unless you are committed to deferring for at least five years already, write off class 3A as an option and defer instead. Somewhere between five and ten years into deferring is the likely break even point between deferring and class 3A.

When it comes to class 3A or something else with your money, here are some other things to consider that would probably beat class 3A, depending on how high inflation is because they aren't inflation linked:

1. Albion VCT available again in November. 30% of purchase price refunded by HMRC, capped at income tax actually payable in the tax year of purchase, must hold for five years or repay. 10% tax free income in two 5% chunks each year after allowing for the initial 30% relief.

2. P2P investing with 10% easy, 12% quite readily available, 14% sometimes and something invitation only that currently pays me 1.5% a month, around 19.5% a year equivalent. No FSCS fraud protection for P2P investments. All the above available secured on physical property from pawned items to buildings and physical plant and some with a protection fund on top. But not guaranteed not to lose money, just likely not to.

Those two options have the potential benefit of not spending the capital.

chris1

uk1 wrote: »

Yes, I was planning both it isn't either or. With my other pensions and with the cash I need not touch either of our state pensions for some time .. in fact indefinately .. and could invest the max top up.

My current decsion is just about top up. Ie for my wife or me or both ... and should I do it now and that might make sense if the 10.4% is involved. I couldn't see in the document where it says that if I bought the top up early that it would be added to the pension and roll up by 10.4%.

Page 4, first FAQ
What happens to my State Pension top up if I have deferred my State Pension?
[FONT=FS Me Light,FS Me Light][FONT=FS Me Light,FS Me Light]You can still make State Pension top up contributions if you have deferred taking your State Pension. You will accrue increments until you decide to take your State Pension. When you decide to claim your State Pension, any State Pension top up entitlement plus increments accrued will be paid.[/FONT][/FONT]

Wouldn't this make it a good low risk option for someone with spare cash available who is already deferring?

uk1

jamesd wrote: »

Unless you are committed to deferring for at least five years already, write off class 3A as an option and defer instead. Somewhere between five and ten years into deferring is the likely break even point between deferring and class 3A.

When it comes to class 3A or something else with your money, here are some other things to consider that would probably beat class 3A, depending on how high inflation is because they aren't inflation linked:

1. Albion VCT available again in November. 30% of purchase price refunded by HMRC, capped at income tax actually payable in the tax year of purchase, must hold for five years or repay. 10% tax free income in two 5% chunks each year after allowing for the initial 30% relief.

2. P2P investing with 10% easy, 12% quite readily available, 14% sometimes and something invitation only that currently pays me 1.5% a month, around 19.5% a year equivalent. No FSCS fraud protection for P2P investments. All the above available secured on physical property from pawned items to buildings and physical plant and some with a protection fund on top. But not guaranteed not to lose money, just likely not to.

Those two options have the potential benefit of not spending the capital.

Thanks for the ideas, but I am rightly or wrongly totally risk averse. I sold all my equities and put them all into cash seemingly at around the right moment when everyone said I was daft and put all cash into long-term high interest savings account. Put very simply I felt that if you feel that you can survive well without the need to take further risks ie it is simply put "greed" that makes you risk and seek more, then to me that wasnt logical.

So appreciate the suggestions but they are not for me. I am simply optimising return on the cash I have risk-free.

Thanks again.

J.

uk1

xylophone wrote: »

Inheritable on death on the same terms as existing additional state pension, that is, according to the age of the spouse.

https://www.gov.uk/additional-state-pension/further-information

Thanks for that. I am 36 hours older than the wife and it looks like it is just the 50%.

J

uk1

chris1 wrote: »

Page 4, first FAQ
What happens to my State Pension top up if I have deferred my State Pension?
[FONT=FS Me Light,FS Me Light][FONT=FS Me Light,FS Me Light]You can still make State Pension top up contributions if you have deferred taking your State Pension. You will accrue increments until you decide to take your State Pension. When you decide to claim your State Pension, any State Pension top up entitlement plus increments accrued will be paid.[/FONT][/FONT]

Wouldn't this make it a good low risk option for someone with spare cash available who is already deferring?

Thanks.

I may be misreading this but it doesn't state what the increments specifically are.

In other words is it BOTH annual increases ie CPI AND the 10.4% defferal increase each year it is defered

ie £25+(£25x10.4%)+(£25*cpi) after the first year of defferal?

J.

jamesd

It would be a good low risk option if they were already going to defer so long that the deferring started to get less income for their money than the top-up. In that case they would wait and buy the top-up after their last birthday within the top-up purchase time window to maximise their age and hence the income they get for their money.

Be_Happy

We seem to have a winner situation with this. As I posted previously I was struggling to get definite info on inheritance of top-up pension.

Well it has now been confirmed. In our situation OH is 85 and in poor health, while I am 68 and, so far, in good health. OH's main pension dies with him, so we are looking at this top up like life insurance.

It would cost OH £9850 to buy £25 weekly, but would cost me £20675. Because OH was born in 1930, I would inherit 100% of the top-up addition.

So we plan to buy top-up in OHs name. While he is alive we'll save the increase to replenish some of the purchase price and I stand to inherit the full weekly addition.

I could drop dead tomorrow, but the top up is a gamble worth taking.

jamesd

Given the 100% inheritance, his age being in the range where top-up pays more income for the money than deferring and your much younger age combined with confirmation of 100% inheritability in his situation, that seems like an excellent plan!

I'm assuming here that you won't be relying on means tested benefits after he's gone.

Thanks for providing an excellent example of a situation where the top-up is a good deal. In so many cases it won't be but not all, as you're demonstrating nicely!

uk1

I apologise for showing continuing thickdom, but if I were to buy £25 a week for my wife now, but defer for a further year, will the £25 be increased by 10.4%.

jamesd

Yes, pro-rated for partial years.

You wrote earlier that she became 65 a few weeks ago. This means that with the 18 month time span for the offer being available she could wait for one more birthday before buying the extra £25.

At 65 now she'd pay £934 per Pound of extra income before the 10.4% increase, dividing by 1.104 to allow for that gets her to £846.01 per Pound if buying now.

If she was to wait until aged 66 she'd pay £913 per Pound.

Given her age and her recent birthday (so I can approximate as a whole year to the next birthday, a full 10.4% increase) it appears that promptly buying the class 3A beats waiting until after her next birthday.

This wouldn't be true if she was a lot closer to her next birthday. If she was say 3 months away the £934 cost per Pound would be reduced to £934 / (1 + 0.104*3/12 ) = £914.97. That's more than the £913 cost of waiting until next birthday so if she was within three months waiting would be the better choice.