Pension top up scheme from 12/110/15

HappyHarry

In general those who are eligible should not use it because they can get a higher 10.4% on their money by deferring their state pension for a year instead, something they can do once even if they ahve already claimed it. It's not limited to just one year, you can defer for five years and get a 52% increase.

I know jamesd regularly reminds us all about the benefits of deferring the state pension, however, I have to concur with jamesd's results here.

In nearly all cases, it is financially better for someone to defer their existing state pension and live off their capital whilst deferring, than it is to spend their capital on Class 3A NICs.

Before any Class 3A NICs are purchased, a comparison should be run between deferring and purchasing.

There is no ambiguity in the comparison; it is clear how much increase in pension one would receive by deferring, and how much increase one would receive by purchasing Class 3A NICs.

The future increases in payment are identical whichever method chosen, as is the inheritability of the additional pension.

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

bigfreddiel

bigfreddiel wrote: »

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

Bad form to reply to ones own post, but here goes.

Having let jamesd' logic of deferring before buying any class 3A nic's, then could you just pay back a years worth of state pension in return for a 10.2% increase without having to actually wait one year. I'm pretty certain this isn't an option, you could call it a Buy Back Deferal Scheme and would be nice if it was available.

In fact why doesn't the gov.uk about buying class 3A nic's mention the option of deferring being a whole lot more cost effective in most cases?

Cheers fj

jamesd

bigfreddiel wrote: »

If she deferred for a year she would get 10.2% 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.

My pleasure. Please do pass on the word. Would you also be kind enough to consider posting those numbers over at the MSE-started top-up topic? That's because sites like examples and yours is a fine one to give to illustrate the importance of comparing and picking whichever deal works out best.

jamesd

bigfreddiel wrote: »

Having let jamesd' logic of deferring before buying any class 3A nic's, then could you just pay back a years worth of state pension in return for a 10.2% increase without having to actually wait one year. I'm pretty certain this isn't an option, you could call it a Buy Back Deferal Scheme and would be nice if it was available.

I've considered that idea myself, in part because it would make it more directly comparable to an annuity purchase if it could be done from pension funds. Just spend what you want to spend, then the state "pension" checks come from that until the amount you spent no longer covers deferring, then the deferral ends and it transitions to the state pension itself.

bigfreddiel wrote: »

In fact why doesn't the gov.uk about buying class 3A nic's mention the option of deferring being a whole lot more cost effective in most cases?

The clue there is perhaps that class3A is described as actuarially neutral. Which means that deferral when it pays more is expected to actually cost money eventually, rather than break even. So there is a direct conflict of interest between telling individuals what their best choice is and the economic interests of the government budget.

cslogg

I can take my pension from Jan.2016 so I filled in my claim form online a couple of weeks ago.
I have now decided i would like to defer but cannot see any process on the gov.site to do it for someone in my postition.

xylophone

http://www.pensionsadvisoryservice.org.uk/about-pensions/the-state-pension/claiming-state-pension

Telephone for advice?

jamesd

cslogg wrote: »

I can take my pension from Jan.2016 so I filled in my claim form online a couple of weeks ago.
I have now decided i would like to defer but cannot see any process on the gov.site to do it for someone in my postition.

Give them a call and they should be able to tell you what to do. Don't worry too much if it does start, you're allowed to defer once even after starting to claim.

sparky6840

There may be positive advantages for some to do this, for me I do not see any positives only risk,
For a 65 year old it's £8900 to receive £10 a week extra and take 17 years to get the £8900 back, taking them to age 82.
And for a 75 year old it's £6740 for the same £10 a week extra and 13 years to get the £6740 back taking them to 88 years old.
Yes the extra payments then carry on for the rest of life, and inheritable around 50%.
I believe there would be less risk in them not doing the above and running down either the £8900 or £6740 @ £10 a week which would also take them to 82 and 88 age, when if that were their only capital which would run out, of course I assume state pension would have carried on rising year by year.
For me I'm now aged 65 with full state pension plus reasonable amount of extra pension, deferring for slightly over 2 years which I believe suits me.
This was my quick take of the top-up scheme of £1 to £25 purchased extra pension and do apologise if I have it wrong

bigfreddiel

sparky6840 wrote: »

I believe there would be less risk in them not doing the above and running down either the £8900 or £6740 @ £10 a week which would also take them to 82 and 88 age, when if that were their only capital which would run out, of course I assume state pension would have carried on rising year by year.

Have taken into account that the £10 a week you take from your capital increase by the triple lock each year, and by at least 2.5%?

Cheers fj