MSE News: The state pension top up – Martin's three-minute 'should you do it?' briefi

Pincher

PasturesNew wrote: »

Rich peoples' problems.

Rich or not, you certainly need to have some spare cash to top up with.

I do have ~£20k in defined contribution pension pots.
Obviously, if I drawdown, I am exposed to tax.

Since this top-up business is like buying an annuity, I would seriously consider it if I could buy it using my money purchase pension pots, TAX FREE. Suddenly, all those tax rebates will come back to bite George Osborne, if this is possible.

I expect a really funny edict soon: NO, you may not use your pension pot to buy pension top-ups.


Theoretically, if there is unlimited 0% BT deals, you can pay ~1% a year in Transfer Fee, but get say 5% back, say, for the money. Yummy. I doubt they will keep giving me 0% BT deals when I retire though.

bigfreddiel

My wife gets £137/wk that's, £7124/yr

If she deferred for a year she would get 10.4% increase or £14/wk at a cost of £7124, a years worth of state pension.

Now using the calculator at .gov.uk and after entering her dob and using £14 as the amount of class 3A she needs to buy it costs £11,578. So this option is £4,454 more expensive!

Thanks jamesd for pointing this out.

Cheers fj

geoffreyq

It is most unlikely to benefit taxpayers. However, it is quite attractive for me to pay for this as a way to help my 66 year old mother who is a non taxpayer, as she has minimal savings of her own.

jamesd

geoffreyq wrote: »

It is most unlikely to benefit taxpayers. However, it is quite attractive for me to pay for this as a way to help my 66 year old mother who is a non taxpayer, as she has minimal savings of her own.

Are you already paying for her to defer her state pension for at least five years? Bigfreddiel's example points out how much more lucrative that can be than class 3A. You can also do both if you're paying her to defer for so long that the deferral rate will drop to the Class 3A rate.

FreegleEagle

I heard the former pensions minister on the radio a few weeks ago saying you could buy back into the second state pension if you had been contracted out. I can't find any info anywhere on this, so I wonder if I have muddled it up with this scheme. I'm pretty sure it was on Radio 4 Moneybox. Anyone out there got any ideas?

mumps

Pincher wrote: »

Rich or not, you certainly need to have some spare cash to top up with.

I do have ~£20k in defined contribution pension pots.
Obviously, if I drawdown, I am exposed to tax.

Since this top-up business is like buying an annuity, I would seriously consider it if I could buy it using my money purchase pension pots, TAX FREE. Suddenly, all those tax rebates will come back to bite George Osborne, if this is possible.

I expect a really funny edict soon: NO, you may not use your pension pot to buy pension top-ups.


Theoretically, if there is unlimited 0% BT deals, you can pay ~1% a year in Transfer Fee, but get say 5% back, say, for the money. Yummy. I doubt they will keep giving me 0% BT deals when I retire though.

I'm still getting loads of 0% BT deals offered to me and I retired at the start of this year. Some of them are offering to pay it into my bank account rather than pay off a balance. As a pensioner I am resisting as I don't have anything particular to do with it.

bobibhai

My wife has only a small State pension due to having paid the popular Married Woman's Stamp. I thought it worth enquiring about the new 'Top Up', i.e. lob in about £21K a and she gets another £25 per week, Her Mum at 97 going strong, Dad died at 94, mine died in their early 70's. so she should outlive me- extra £25 pwk great! BUT on my death she can only get my pension +80% of my 2nd pension as my Widow. No more. DWP confirmed that she can never get more than this. So if I live a long life it might be worth it, but if I don't the £21K will produce nothing extra for her after my death.
Has anyone noticed this in the small print? Certainly none of the 'experts' have as far as I can see. So is it a good deal? Well think very carefully. No doubt there are Treasury fingers in this pie!!

Be_Happy

bobibhai wrote: »

My wife has only a small State pension due to having paid the popular Married Woman's Stamp. I thought it worth enquiring about the new 'Top Up', i.e. lob in about £21K a and she gets another £25 per week, Her Mum at 97 going strong, Dad died at 94, mine died in their early 70's. so she should outlive me- extra £25 pwk great! BUT on my death she can only get my pension +80% of my 2nd pension as my Widow. No more. DWP confirmed that she can never get more than this. So if I live a long life it might be worth it, but if I don't the £21K will produce nothing extra for her after my death.
Has anyone noticed this in the small print? Certainly none of the 'experts' have as far as I can see. So is it a good deal? Well think very carefully. No doubt there are Treasury fingers in this pie!!

I've had a hectic day, so I'm maybe not thinking clearly, but I can't get my head around this. Surely the widow gets a % of the top up?

pafpcg

bobibhai wrote: »

DWP confirmed that she can never get more than this. So if I live a long life it might be worth it, but if I don't the £21K will produce nothing extra for her after my death.

From my understanding of the State Pension TopUp, if both partners are entitled to buy the TopUp, it makes greater financial sense for the partner with the greater life expectancy to buy the TopUp. Bobibhai, if you believe this to be the case, your wife should be the one to buy the TopUp and to receive the payment for the rest of her life. If she were to die first, then you should be entitled to 50% of her TopUp payments. If both of members of a couple were to buy TopUps, then the survivor would continue to receive his/her own individual TopUp payments togther with at least 50% of their partner's payment entitlement.

I am non-plussed by your report of DWP's statement. Are you sure they were considering StatePension TopUp in their calculations? I was under the impression that State Pension TopUp is independent of any calculation of State Pension entitlement. I suggest you re-check what the DWP have said and the assumptions behind their calculation.

bobibhai

The only percentage that a widow gets is of the difference between the Basic full state pension (£115.95 per week if fully husband has fully qualifying years accrued) and any added from the, so called, 2nd pension- i.e. that arising from the Contracted Out and Graduated Pension. So, as explained to me by DWP today, take the Basic away from the total and apply whatever the percentage is applicable to the potential widow's age to the difference and add that to the Basic. That gives the total a widow will receive. This relates only to a widow who does not have a full pension in her own right.

The possible 'up to £25' which you might be tempted to buy with £21K or so according to age ceases to be paid to a widow who will be relying on her late husband's contributions. In other words, as she put it, it just gets swallowed up. The lady at DWP said that many people do not realise this- unusually frank, but at least I now know - at least based on what the DWP lady has said.

There is reference to a spouse inheriting part of the (£25) top up in the Government paperwork, but DWP stated today-" You cannot get more than the Basic plus whatever might accrue from the 2nd pension" - as above.

She might be wrong of course, but she did have the voice of confidence and added that 'I remember this from the training".

She virtually said 'Don't waste your money'- being aware that the call was being recorded. Of course it might be worth getting it in writing- if you wish you have to write to the Bereavement Department in fact I think I shall do so as I originally intended. I hope this is of some help.