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State pension top-up proves a flop

Richard allen

Richard Allen

Omnium Wealth Management

Financial Planner

25th January 2018

Only 13,000 people took advantage of the government’s state pension top-up scheme which ran for 18 months between October 2015 and April 2017. Figures released by the Office for Budget Responsibility (OBR) show that less than 5% of the people expected to take up the opportunity (265,000) did so, leaving many to judge former Chancellor George Osborne’s plan a failure.

The scheme offered men aged 65 or over and women aged 63 or over the chance to increase their state pension entitlement by up to £25 a week. It was estimated that the take-up would generate additional Class A National Insurance Contributions (NICs) of around £870m. However, even though the average payment of around £17,000 was far higher than the £3,200 assumed in the costings, the final total was only £225m.

In its supplementary forecast information released in November 2017, the OBR said it “will carry out a fuller evaluation of the reasons for this large shortfall next year [2018]”.

The up-front costs involved for eligible individuals most likely played a significant role in its lack of popularity. For example, to receive an extra £1 a week (or £52 a year) for life would have cost a 65-year-old an £890 lump sum, while to get an additional £5 a week (£260 a year) would have cost £4,450 up front.

To receive the maximum extra £25 a week (£1,300 a year) of state pension, someone aged 65 would have needed to find a £22,250 lump sum.

Despite the apparently generous opportunity, commentators have concluded that only the cash rich were in a position to take advantage of the scheme and that, for this reason alone, it failed to capture the attention of the majority of those eligible.

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