Topping up the new state pension

Half a million workers short-changed by changes to the state pension will be able to top up at “bargain rates” over the next five years, according to research released by Royal London.


Those retiring before state pension age will have the opportunity to top up their state pension at “bargain rates” in the coming five years. They do this by paying heavily-subsidised voluntary National Insurance contributions for the years between the date when they retire and the date when they reach state pension age.


Hundreds of thousands of teachers, nurses, civil servants and local government workers could benefit from this opportunity to boost their pension at bargain-basement rates, according to Royal London.


This is because under the new state pension system, the full flat rate of £155.65 per week is paid to those who have made 35 years of full rate National Insurance Contributions (NICs). Those who were members of public sector pension schemes or the pension schemes of many large employers generally paid a reduced rate of NICs because their scheme was contracted out.


These workers have a deduction made from their new state pension, which means most will not receive the full new flat rate in the early years of the new system.


Royal London calculated a single year of class three contributions – worth an extra £230 in state pension payments per year for the rest of their life – could be bought for a lump sum of around £733. That £733 would buy on average of £4,600 over a lifetime – which Royal London said was more than 10 times better than current index-linked annuity rates.


Steve Webb, Director of Policy at Royal London, said: “Large numbers of workers could gain a substantial boost to their state pension for the payment of a relatively modest lump sum.


“But the rules around topping up state pensions are complex so we hope that our new guide will help people to navigate the system.


“It is rare for the government to offer something on such generous financial terms and we want to make sure that everyone knows how to take advantage of this opportunity.”