Increase your pension up to £25 a week: Steve Webb

Updated: 

LibDem Annual Conference

Pensions minister Steve Webb is about to announce a scheme which will enable many people to increase their state pension entitlement by as much as £25 a week for the rest of their lives.

So how will it work, and can you take advantage?


The scheme

The scheme is open to anyone who has already reached pension age, or will do so by April 2016 (when the flat rate pension kicks in). It was first announced in the Autumn Statement, when George Osborne said that the scheme was likely to kick off in October 2015. However, at that point there were scant details of how it would work.

Technically it's a special class of National Insurance contributions. According to the Daily Mail, it lets people pay in lump sums from as little as £900 to top-up their pension. For every £900 they pay in, their state pension will increase around £1 a week. There will be a cap on the most people can pay in, which is expected to be around £25,000.

Is it worth it?

The Guardian highlights that it will benefit many women who often have gaps in their National Insurance Contributions from the years when they were looking after children - and they may not qualify for the full state pension. It will also be a boon for self-employed people who have no pension beyond the state.

When the scheme was first announced, the government discussed setting returns at the kind of levels that people could expect in the private market, but the payouts discussed today are far better than people could get by buying a private annuity. Hargreaves Lansdown points out that on the open market an extra £1 a week would cost £1,468 rather than £900.

Tom McPhail, head of pensions research at Hargreaves Lansdown says: "The government is looking at some very interesting ideas to help pensioners to boost their state pension entitlement. Previously the government had been looking to limit any additional state liability to the risk of pensioners living too long (and therefore costing the state more money). These ideas suggest that there is a bit of a rethink going on, with the government willing to offer more generous state pension foundations, on top of which private pension savings can then be built."

He adds: "In principle the terms offered by the government for these additional state pension deals look very attractive.'

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