2

The UK Government are offering a pension topup scheme details here:

https://www.gov.uk/state-pension-topup

Going on the above example, it would take 20 years to recover your initial 4k outlay compared to just putting that money in the bank with a 1% savings rate (which you can easily exceed if you're savvy).

By that point the guy is now 88. Even if he lives another 5 years he's still only £1400 quid up. And thats an ENORMOUS IF.

PLUS what on earth will he do with an extra 260 quid a year when he's 88. Nothing useful. It wont cover the no doubt enormous costs of care, so it just doesn't make any sense to me whatsoever.

There is one option - perhaps he hates his children and wants to ensure they don't get as much inheritance?

Perhaps there is a use case, some combination of age/gender etc, personal circumstances, where this does make sense?

(The government does already separately offer schemes for women who dont have enough NICs to top up their pension - so it's can't be that example)

3

This scheme is specifically aimed at giving a bit extra to people who have reached or will reach pension age before April 2016 when the new flat-rate pension comes in. The new scheme will pay somewhat more than the current one, so this scheme is intended to provide some compensation.

A couple of points which aren't mentioned on the calculator but are in various articles:

  • The top-up payment is index linked; it will rise in line with inflation. UK inflation is currently very low but that could change.
  • The top-up payment could outlive you; if you're married 50% of the top-up payment will go to your spouse if you die first.

It's a much better deal than you could get buying an annuity on the open market at the moment but it does have the same major downsides as any annuity:

  • loss of flexibility since you give up the capital
  • value is dependent on how long you (and/or your spouse) live. You might be quids in but you might also lose big.

It's not a no-brainer but nor is it an obviously bad deal.

  • OK Interesting. The index linking means he's in profit 2 years earlier. Still not a biggie. As for 50% going to spouse.. well meh. You've still lost it. I Don't really understand how it's compensation if they're expected to stump up a massive downpayment. – Codek Oct 1 '15 at 16:05
  • 1
    @Codek Think of it as longevity insurance; you won't outlive life annuity income, but can outlive your savings. – Chris W. Rea Oct 1 '15 at 21:56
  • 2
    @codek It's compensation in the sense that it's effectively a government-subsidised annuity. It'd cost much more to buy something equivalent privately. If you fancy trading capital for guaranteed income it's the cheapest game in town by a good way. – Nigel Harper Oct 2 '15 at 16:24

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.