Video explains the projected costs for increasing your state pension by up to £25 per week between April 2014 and April 2016 for those that reach or have already reached state pension age before April 2016.
“Hello there. I have been contacted quite frequently recently on the subject of state pensions and the state pension top-up.
Some of you may be aware that the government announced that with effect from April 2014 and physically starting in October 2015, the ability for people who reach state pension age or have two years to go to state pension age. From 2014 through to April 2016 when those new flat rate pension rules start. So those people [sort of] have a two-year window, people who are retiring (state pension age) between April 14 and April 2016 you've been offered a facility to stay top up your state pension by £25 per week.
So what's all this going to cost?
To give you some example figures:
So is that good value? If you're 65 years old and you want [to take the] buy the full increase; so not £1 a week but you want to increase your state pension by £25 per week, that's 25 X £890 is £22,250. So to increase your state pension by £25 per week it’s ‘gonna’ cost you over £22,000.
[And] the question is: Is that value for money? By increasing your pension by that amount e.g. £890 to get £1 a week, £52 a year, your breakeven point on a straight line is about 17 years and for a 75-year-old the breakeven point is about 13 years. Now, even if I make adjustments for inflation because the state pension is inflation-adjusted each year, or it is currently, then even if that takes it down to let's say 13/14 years and for a 75-year-old let's say 10 years, this is still a gamble on life expectancy.
It's a gamble on you giving up access to your capital e.g. if you wanted by the full £25 per week increase it will cost you over £22,000. So you're giving up access to capital, gambling that you are going to live for like I have said, in simplistic terms 17 years but with inflation let’s call it 13 to 14 years and that's really the decision here.
So as far as I'm concerned I don't necessarily consider it fantastic value for money. I don’t think it’s bad value for money in terms of we are living longer. State pensions if your spouse or civil partner hasn't accrued a full state pension then your state pension rights can be passed onto your spouse as well on death. So I don't see it as a particularly bad deal in terms of: “right, well I’ve got breakeven is about 14 years inflation-adjusted and well if I do pass away early then my spouse if I have one may continue to benefit from that state pension increase”.
So, [I am] fairly neutral on the subject. I believe it's a, you’ve got to weigh up: “right if my family has good longevity, as in life expectancy, if you kept yourself fir and healthy and all of those sort of things and if you have plenty of access to capital already. If you can afford to give up access to capital and you believe you will live for more than 14 to 17 years then ‘yeah’ it represents excellent value for money.
Likewise, if you not so sure or if it's “well okay my state pension is taxable where as I can invest my £22,000/ £22,250 in something that’s tax efficient to deliver me income but still I have access to the capital as well, then it may be that this new state pension top-up isn't for you. So I do think it's a gamble, I believe that you actually won't know whether it was a good gamble or not until sadly the day that you die and then you won't know about it anyway.
So is it a good deal? I think it's there, it's about a market rate deal. It's not fantastic. Likewise, it's not a bad deal. it is backed by government which is supposedly more secure than investing in a pension company or a bank or something like that. [And] but I don't think it's as ‘cut and dried’ and I think it comes down to your own personal decision of
So, just refresh those numbers again £1 per week for a 65-year-old costs £890, £1per week for a 75-year-old will cost you £674.
Going back to the original example: if you're 65, £1 a week costs £890 if you want to buy £25 per week additional state pension, then that will cost you £22,250.
It's only available for people who have come to state pension age between April 2014 and April 2016 , sorry for those people that have it state pension age by those dates. It is only available for two years and payments potentially start from October 2015 but I don't think it's as good a deal perhaps as may be made out to you. If you've got any questions, as ever, please do contact us. Thanks very much watching."