The Department of Work and Pensions (DWP) has recently issued a reminder to all those who have expressed an interest in topping up their Additional State Pension by up to £25 per week. The option to make Class 3A Voluntary Contributions applies to individuals who attained their State Pension Age (SPA) on or before 5th April 2016, i.e. individuals who receive, or will receive, their State Pension under the old rules.
Why It Might Be Worth Considering
It has been possible to make the Class 3A Voluntary National Insurance Contribution (NIC) payment since October last year. When the Government announced the details of these earlier, they stated that the rate offered would be in line with the market. However, even when they became available it was not possible for a healthy individual to secure a pension annuity paying the same level of income as achieved from paying Class 3A NICs. However, since then, annuity rates have been falling and then, post BREXIT, nose-dived.
So, for an individual aged 66, to secure an income of £1,300 p.a. with a 50% spouse’s pension that is index-linked would cost over £46,900, according to the MAS site on 28th October 2016.
To obtain the same level of income a Class 3 would cost £21,775 based upon the DWP calculator run on the same date.
In simple terms, the Government offer, which was generous when it was launched has, due to the changes in the annuity market, become very attractive.
It should be noted that securing a taxable pension of £1,300pa or £1,040 after 20% income tax would take almost 21 years to break even, taking the 66 year old to 87 – this exclude the indexation of the pension income and also the loss of growth on the £21,775 investment. This represents an annuity income of almost 4.8%.
However, it’s worthy of consideration!