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NICe changes?

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2 December 2014

There is currently a limited opportunity for pensioners and those reaching State Pension age before 6 April 2016 to enhance their entitlement to the UK State Pension. This was announced as part of the 2013 Autumn Statement with those eligible able to pay voluntary Class 3A NI contributions between 12 October 2015 and 5 April 2017 in order to top up their entitlement to a UK state pension.

The Class 3A contributions will allow for up to a £25 per week increase in the State Pension received.  The contribution payment to be made will be dependent upon the age of the individual at the time they make the contribution along with the amount of additional weekly pension they would like to receive. This benefit does not come cheap, however, as set out in the examples below.  
 
Age at date of payment Additional weekly state pension Class 3A contribution required Rate of return
65 £5
£15
£25
£4,450
£13, 350
£22,250
5.8%
75 £5
£15
£25
£3,370
£10,110
£16,850
7.7%
85 £5
£15
£25
£1,970
£5,910
£9,850
13.2%

Based on the above a 65 year old would not be in credit until they reached 82, however, this is without factoring in inflation and tax which would mean the individual would need to live some years longer to reap any benefits.  It could, however, benefit those with younger spouses/civil partners as they would inherit 50 percent of the top-up on the death of the individual receiving the state pension.  It may also benefit those in good health as it does currently offer better value than an annuity.

There is a 90 day cooling off period from the date the payment is made and this also applies if someone dies during that period.

We would recommend that financial advice is sought before any pension planning is undertaken.  All options should be considered as depending on an individuals circumstances there may cheaper ways to top up their State Pension.