The Government revealed today a new scheme where people can top up their pensions and receive an extra £25 a week by doing so. The scheme is essentially for people who have already reached pension age, and are liable to receive a very low pension, once they have actually retired.
The Liberal Democrat pensions minister Steve Webb unveiled the scheme today and advised that people would now be allowed to pay in between £900 to £25,000. These top-up payments will then increase the state pensions for the rest of people’s retirement. The scheme will start in April 2016 and will be available to anyone who wishes to add to their pensions.
It is thought that the top-up scheme will be of particular interest to women, who typically live longer than men, earn less than men and have part-time jobs where there are little options for a work-based pension. Women also have to take time off from work to raise children, and this leaves a gap in National Insurance payments, which affects their pensions. Another group expected to benefit are the self-employed, who, under current conditions only qualify for the basic pension.
At present, men receive an average weekly state pension of £148 and women receive £131. There are an estimated 2.8million women who receive less than £80 a week and 4.2million self-employed who only get £110.15 a week.
The scheme will allow people to boost their pensions by around £1 for every £900 paid in. The exact amount of extra pension a person will receive will depend on their age, with older people receiving more than younger claimants.
The government are still working on the figures, but word is that there would be a maximum top-up, to be set at between £20,000 and £25,000. So those paying the maximum would then be eligible for the extra £25 a week for the life of their pension. That works out at an additional £1,300 a year.
Mr Webb spoke to the Daily Mail: “Many pensioners have been getting a very poor return on their savings in recent years. This scheme will give them a guaranteed, index-linked return and will be particularly attractive for women pensioners who will draw the higher pension for longer.”
There is also a separate scheme that is aimed at existing workers, in which the law would be changed to allow people to invest in European-style collective retirement schemes. These type of collection schemes pools contributions from participating members into a central fund from which the pensions are paid out from, rather than individual accounts.
It is thought that these kinds of schemes can boost an average pension by around a third because their larger size allows for better value and flexibility. Larger funds means that any risk in investment is shared between savers, which in turn reduces the overall risk and minimises any hits to the individual. There are also less administrative charges with a collective fund.
Mr Webb said: “Some of the best pension schemes in the world are run on a collective defined contribution basis. I would like to see British workers have access to schemes run on this basis.”
Source: Daily Mail