Retirees not taking advantage of pension top-up scheme

0
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.

About author

Director magazine

Director magazine

Director is the magazine for business leaders. Free to IoD members and available to purchase through subscription, each edition is full of insightful interviews with entrepreneurs and company directors.

No comments

Time limit is exhausted. Please reload the CAPTCHA.