The Government has offered up to 12 million Pensioners the chance to convert a lump sum into a guaranteed income for life, on terms significantly better than those available on the open market.
The scheme is available to people who retired on the old basic State Pension of around £120 per week, and who therefore miss out on the higher, flat rate pension, of £155.65, introduced in 2016.
But time is running out as the scheme closes on 5th April 2017.
How does the scheme work?
To qualify you must be entitled to the State Pension, and:
- A man born before 6 April 1951, or
- A woman born before 6 April 1953
You need 30 years of full National Insurance contributions to qualify for the full basic State Pension. Fewer qualifying years of contributions reduce the weekly amount.
The scheme will help those people who do not have the required 30-year contribution history, or those who simply want to bridge the gap between their current State Pension and the new flat rate.
However, the scheme is a transitional measure, and time is running out. The lump sum must be invested before April 2017, when the offer closes.
What can you get?
The exact amount depends on your age and the lump sum you are prepared to contribute.
As an example, each additional £1 a week of State Pension would cost a 65-year-old £890. The maximum top up of £25 a week will cost £22,250.
You can calculate the exact cost for your circumstances by using the government’s calculator, which you can find by clicking here
The payout is linked to inflation and allows a surviving spouse or civil partner to inherit 50% of the top up on the pensioner’s death.
Should you invest?
Eligible pensioners must calculate whether it pays them to invest, depending on their age, health, marital status, tax bracket and inheritance plans.
When the scheme was launched in 2014, many people felt that other ways of investing could bring better returns. Falls in interest and annuity rates have meant the appeal of the scheme has grown and is now significantly more attractive.
It offers a guaranteed income, inflation proofing and a survivor’s pension, all of which can be very expensive to buy on the open market.
However, there are some disadvantages to consider:
- As with any annuity, if you and your spouse or civil partner die early the cash is lost
- The income is taxable, so you need to understand your tax position
- Those in poor health may get more on the open market
We are here to help
The right decision can only be made after considering your own unique circumstances.
We are here to help and advise, if you would like more information about the scheme please get in touch by calling us on 0115 933 8433.
But, don’t delay, the scheme closes on 5th April 2017.