Women and self-employed set to benefit from pension changes

Can buy in to new Class 3A system

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A new government scheme could allow women and the self-employed to make up what they lose from the new flat-rate pension.

Under the new system, people reaching state pension age after April 6 next year are set to receive a new flat rate of £155 a week. This is made up of a basic pension — currently £115.95 a week — plus any state second pension or Serps.

However, because many older women paid the reduced married women's stamp instead, they aren't eligible for the Serps element; and nor are the self-employed.

Now, the government is planning to allow these people to level the playing field by buying a special top-up called a Class 3A voluntary national insurance contribution.

From October 12, those aged 65 will be able to pay a lump sum of £890 for an extra £1 per week on their pension for life, rising to £22,250 for the £25 a week maximum.

The cost will fall with age, so that a £1 a week extra payment will cost £779 for 70-year-olds, £674 for 75-year-olds and just £127 for those aged 100 or over.

The payment will be inflation-proofed through a link with the cost of living index, and where one member of a married couple does, the other will continue to receive half the amount.

The scheme will run for 18 months, with the government estimating that around 265,000 people will take up the offer.

So is it worth it for you?

As with an annuity, it's all about a gmable on whether you're likely to live long enough to recoup what you put in. Figures from the Pensions Policy Institute (PPI) show that a 65-year-old would need to live to 81.5 to come out ahead with the new Class 3A system, and a 75-year-old to 87.5.

The average life expectancy in the UK is now 89.3 years for women and 86.6 years for men, meaning that on average most people would be better off making the new contribution. The government has a top-up calculator here.

Many people would also perfer to keep hold of their cash, either for a rainy day or to pass on to their children.

"For some people, who want the security of an increase in their regular pension income, with safeguards around inflation protection and inheritance and paid directly by government, it may represent a good investment," warns the Department for Work and Pensions.

"But for other people, the security of having access to their capital – to meet living expenses, for a rainy day and for forming part of their estate – is more important."

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