Pension ‘top up’ introduced

Thursday, October 8, 2015

From 12 October 2015, eligible individuals will be able to begin topping up their state pension by up to £25 per week.

The lump sum payments, known as ‘class 3A voluntary contributions’, can be made up until 5 April 2017 by those that are entitled to a basic state pension before 6 April 2016. For men this means those who were born before 6 April 1951, while fornwomen the relevant date of birth is before 6 April 1953.

An example of how pension top ups will work:

A 68 year old individual decides to put an extra £5 a week into their pension, which equates to £260 a year. Because the cost of an adding an extra £1 for a 68 year old would be £827, the individual must multiply £827 by 5. The lump sum payment here is £4,135.

The reason for the introduction of the pension top up option is that the new state pension system which starts in April 2016
is expected to provide a more generous income than the current system.

Pension boosting strategies

While you can top up your basic state pension pot, there is also the option to start another pension pot and begin contributing to that. Your existing contributions to your workplace pension can also be voluntarily increased.

The second main option is to defer your pension. This means that you agree to delay the date that you start taking your retirement income. This can have a number of advantages, chiefly that it allows you more time to contribute and that annuity rates may increase over time.