Time is running out for some doctors to take advantage of a little-known government scheme to help retirees top up their state pension. Certain qualifying savers can now boost their retirement income by buying extra state pension with an upfront payment.
Some 1.7million people reaching state pension age in the next ten years will not receive their full state pension because they have gaps in their national insurance record. To claim the new flat-rate pension of £155.65 an individual must hold 35 years’ worth of NICs.
Now there is a one-off chance to buy an extra portion of pension between £1 and £25 more a week. This is guaranteed income for life and is protected against inflation. Also, in most cases a spouse or civil partner can receive between 50 and 100 per cent of the extra pension after the saver’s death. To apply, the saver must have reached state pension age before 6 April this year.
Despite official predictions showing around 265,000 people could take advantage of the option, only 4,000 savers have signed up in the first six months of the scheme. Applications must be received by 5 April 2017.
Many people who paid into a good workplace pension such as doctors were previously contracted out of SERPS. Due to this, they now face a reduced state pension compared to the new maximum. It may well be worth considering topping up by taking advantage of the new rules.
The government has now created a new class of voluntary national insurance contributions called Class 3A. Depending on how much extra pension you require, it may cost anything from as little as £127 up to around £23K to buy the pension top-up.
The cost decreases as you get older so the longer you live, the better value the deal represents. If you are of the right age to apply, you could stand to benefit from paying out a lump sum now in order to receive guaranteed index-linked payments for life but it does depend very much on your own individual circumstances.
You should remember that state pension top-up is taxable as income which will be an important consideration. For some, ISAs can prove to be a better bet or you may choose to defer your state pension.
To apply, men must be born before 6 April 1951 and women born before 6 April 1953.
For detailed pension planning advice, please speak to one of our advisers on 020 7636 7006.