If you are drawing your state pension (or if you are due to start drawing your pension before April 6th) the Government is now offering you the option of purchasing a bigger state pension.
You can purchase up to £25 a week of extra income, and the cost will depend on how much you buy and your age. The income purchased will be inflation linked and guaranteed for life.
A 65 year old man would pay £890 to secure an extra £1 of income each week. To purchase the maximum £25 would therefore cost £22,250. This represents an income yield of 5.8%. An 85 year old would pay only £394 for each £1 extra making their income yield in excess of 13%. You should bear in mind though that it will take some time to make back your capital outlay. It will take the 65 year old man 17 years and 6 weeks before he breaks even on the amount paid. This option is therefore unlikely to be suitable for those who are in poor health or have a lower life expectancy.
The new state pension comes into force on 6th April 2016. The weekly pension payment for those commencing taking their benefits is expected to be £151 a week. Currently the state pension is only £115 per week. This initiative will allow those people who are happy to give up their capital the opportunity to increase their ongoing benefits.