Retirement Income – Increasing your State Pension

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.