State pension boost of up to £25 to be made available

Hundreds of thousands of people over the age of 61 will be able to get higher pensions by topping up their payments, it has been announced. Anyone due to retire before April 2016 is in danger of losing out on the new higher state pension, which will then be £144 a week. So the government has announced details of how such people will be able to boost their pensions by up to £25.But some experts were critical, saying an existing scheme offers better value.

The government expects that 265,000 people will take advantage of the idea, which involves those nearing pension age paying a lump sum via National Insurance. The amount that people will pay will depend on their exact age and will take life expectancy into account.The scheme will be open to men born before 6 April 1951 and women born before 6 April 1953.

Value for money?

According to the Government, a 65-year-old will have to pay £890 in total, in order to get an extra £1 a week in pension.

A 75-year-old will have to pay £674 for the same extra income.

The payments will be collected by a new form of voluntary National Insurance contribution, called Class 3A.

An industry spokesman said the scheme appeared generous when compared with buying extra pension income with an annuity.

However, it was not as good a deal as an existing pension top-up scheme, collected via Class 3 National Insurance.

And that Individual Savings Accounts (Isas) might offer better value.

For some, the secure inflation-linked income will be attractive.

However, the income is taxable, which means some savers should pause to consider whether an Isa may be a better, more flexible home for their money, if they are willing to take more risk.

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