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Should you seize the opportunity to top up your state pension?

The Government is offering more than seven million Britons* the chance to boost their state pension income. This could mean a maximum increase of £25 a week (or £1,300 a year) in state pension income, in return for a one-off payment made now.
The offer is open to existing pensioners and anyone who will reach state pension age (65 for men and 63 for women) before April 2016. How much it will cost to top up your state pension will depend on an individual’s exact age: the younger the applicant, the more it will cost. However the additional pension income can be bought in units of £1 per week allocations, so you can choose to buy £5, £10, £25 a week of additional income, depending how much you want to invest. 
The top-up scheme, otherwise known as Class 3A contributions, will provide an income that rises in line with inflation. The other benefit is that spouses or civil partners are able to inherit at least half of the income when the pension holder dies. 

So should you reach for your cheque book now? 

The top up facility won’t benefit everyone, so it is important that you seek financial advice before you make an additional payment into your state pension scheme. The Government do not consider an individual person’s needs or situation when making this type of general offer. So if you have a health condition which means your life expectancy is short and you have no marital partner, it may not benefit you to make the top up payment. There are also alternative investments for your money which you may wish to consider.
The benefits of the top up into the state pension may be significant for some. According to the Government’s figures, if a person age 65 wants an extra £10 of pension income a week (rising with inflation each year) then they would have to pay a lump sum of £8,900 into the scheme. A 75 year old wanting the same rise of £10 a week of income would have a shorter life expectancy, therefore the cost to top up their pension would be a lower lump sum payment of £6,740.
So, for someone who plans to supplement their pension income from savings, but doesn’t want to take any investment risk this may be something to consider. Here, the ‘investment’ you make is for a guaranteed return which will increase with inflation. The ‘risk’ is not that your investment returns will be worse than expected, but that you may not get value for money if you die at an earlier than anticipated age.
Others who may benefit are those who have not built up entitlement to a full state pension over the years due to not paying sufficient National Insurance (NI); people who took career breaks to study, stopped working for a number of years to rear children or those who are or have been self-employed and have not made voluntary NI contributions (Class 2 and Class 3 contributions can both be used to fill in gaps in NI to improve basic state pension and bereavement benefits).
Those wanting to apply for the class 3A top up pension have 18 months in which to submit their application. 
If you are in receipt of a state pension, or if you are about to retire, then talk to your Wealth Planner about your retirement income options. Decisions you make regarding your pension may not be reversible, so it is important you seek financial advice before you make any sudden decisions.
If you don’t have an appointed adviser and would like to speak to someone about your investing for income or retirement options,
 please get in touch, we’d love to help.

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Date issued: 22.10.15

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependent upon individual client circumstances and may be subject to change.

Sanlam is a trading name of Sanlam Wealth Planning UK Limited (Reg. in England 3879955) and English Mutual Limited (Reg. in England 6685913). English Mutual Limited is an appointed representative of Sanlam Wealth Planning UK Limited which is authorised and regulated by the Financial Conduct Authority.

Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol, BS1 2NH.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.