Retirees not taking advantage of pension top-up scheme

Woman and man reading documents to illustrate retirees not taking advantage of pension top-up scheme

Financial planning in association with Scottish Widows bannerThe government’s state pension top-up scheme was expected to attract 265,000 people. So far, fewer than 4,000 have cashed in

Fewer than 4,000 people have enrolled for the government’s state pension top-up scheme – only 1.5 per cent of the 265,000 that were expected sign up.

The scheme enables older people – men born before 6 April 1951 and women born before 6 April 1953 – to augment their retirement income by buying extra state pension though making a lump sum payment.

However, figures on the performance of the initiative up to mid-August have shown a disappointing uptake during the first six months of the scheme – which is still available until 5 April 2017.

The sluggish response is somewhat surprising, given both the government’s initial forecasts and that the terms are considered by many financial planning experts to be attractive – those enrolling can get up to £25 extra a week, protected against inflation, which can usually be inherited by spouses and civil partners.

State pension top-up scheme

Data provided by the Department for Work and Pensions (DWP), after a freedom of information request, shows that – of the 3,848 people to have taken advantage of the state pension top-up scheme to mid-August – the average amount of extra pension purchased was £21 per week, involving a typical lump-sum expenditure of £16,500.

The low take-up has been blamed on a variety of factors including people not having a large enough lump sum to buy extra state pension and the scheme’s possibly confusing classification as a new type of voluntary national insurance contribution, named ‘Class 3A’. The publicity lavished on new ‘pension freedoms’ last year has also been cited as a possible distraction.

A spokesperson for the Department for Work and Pensions said: “We have been clear that many people stand to benefit from topping up their state pension, and those who do will receive guaranteed payments for life.”

A state pension top-up scheme calculator is available online allowing people to work out how much they could receive and how much it would cost them.

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