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


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)


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. 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. Oct 2 '15 at 16:24

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