UK State Pension Top Up, Is It Worth It?

Personal_Finance / Pensions & Retirement Oct 12, 2015 - 07:17 PM GMT

As of today Britain's pensioners are being offered a chance to top up their state pensions under what is known as Class 3A Voluntary Contributions .

The top up is open to all current pensioners and those about to retire by April 2016

The maximum increase in weekly pensions is £25 per week or £1300 a year on top of the current state pension of £115 per week / £5980 per year.

However, the lump sum cost for securing the state pension increase is dependant upon ones age as the following table illustrates:

Age	For £25/wk increase
63 (women only)	£23350
64 (women only)	22825
65	22250
66	21775
67	21175
68	20675
69	20025
70	19475
71	19025
72	18450
73	17975
74	17350
75	16850
76	16150
77	15625
78	14900
79	14350
80	13600
81	12850
82	12100
83	11350
84	10600
85	9850
86	9150
87	8475
88	7850
89	7275
90	6750
91	6275
92	5800
93	5400
94	5000
95	4625
96	4300
97	3975
98	3700
99	3425
100	3175

For example a 68 year old retiree would need to make a lump sum contribution of £20,675 to secure a £25 weekly increase in their state pension that would take 16 years to recoup by age 84. So one could be far better off just drawing the money down from a Cash ISA account then buying a pensions top up that in effect is little different to buying an annuity i.e. the capital is gone.

However, topping up one's state pension is not just based on how long one expects to live for there are other significant variables involved such as means tested benefits that could result in retirees not receiving any more than they would otherwise receive had they NOT topped up their pensions i.e. wasted their capital for nothing.

So pensioners should think hard before jumping on board the state pensions top up bandwagon, and instead take their time to fully work out the pro's and con's based on their personal circumstances because probably in many if not most circumstances pensioners would be better off NOT buying a state pension top up.

In terms of personal pensions, my long standing view has been that the pensions industry largely operates as a sophisticated scam, designed to pay the salaries of fund managers and their staff rather than provide the promised retirement pensions at anywhere near estimates given. Therefore most people would be far better of taking a more hands on approach towards managing their retirement funds OUTSIDE of pension funds and schemes, i.e. via investments in properties (the home you live in is free of capital gains tax), Cash and Shares ISA's and other flexible asset classes.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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