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Time is running out

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I’ve written a number of times on the popular subject of income generation. There is one option currently available for certain people but will be unavailable from Wednesday 5th April 2017 and which is unknown to many.

For those in receipt of a state pension and have reached their state pension age before 6th April 2016, time is running out to take advantage of an opportunity to boost their additional state pension – making voluntary National Insurance Class 3A contributions.

This works by purchasing extra state pension income, from £1 to £25 per week, using a lump sum of money. How much depends on your age e.g. for a 65 year old an extra £1 per week would cost £890. This means to break even you would have to live just over 17 years to be in “profit”, which based on average life expectancy, is highly likely (according to the Office of National Statistics a 65 year old male’s average life expectancy is age 86, so a further 21 years; women tend to live even longer). However, this proposition is even better because the extra pension bought increases each year by the Consumer Price Index (CPI). With inflation expected to increase sharply due to the fall in the value of Sterling, the break-even point will be brought forward. Furthermore, a spouse would receive no less than 50% of the benefit in the event of death. These terms compare very favourably with an equivalent annuity purchase from an insurer and provide a cost effective hedge against inflation and longevity.

Even if you don’t need extra income now you can purchase the extra additional state pension, defer taking the income which would then increase at an interest rate of 10.4% per annum and then take it later.

With interest rates at virtually zero percent and the anticipated rise in inflation, a guaranteed, investment risk free and inflation protected income for life is very attractive.

For those who don’t qualify to make voluntary National Insurance Class 3A contributions e.g. because you haven’t reached your state retirement age, perhaps you can make Class 3 voluntary contributions? There may well be scope if you will not accrue the required 35 years National Insurance payment record at your state retirement age to receive the maximum state pension. To establish whether this is the case you should apply for a state pension projection from the Department of Work and Pensions (DWP) ( which will not only tell you how much state pension you can expect, but also when you will reach your state pension age and whether you have the scope to pay Class 3 voluntary contributions.

Finally, for those of you already retired, remember the words of Voltaire, “I advise you to go on living solely to enrage those who are paying your annuities. It is the only pleasure I have left”.

Author: Paul Newton FPFS, CertPFS (DM & Securities), STEP Affiliate, CertPMI is a Chartered Financial Planner for Castlegate Financial Management Limited, a firm of Independent Financial Advisers, authorised and regulated by the Financial Conduct Authority. 8 Castlegate Grantham Lincolnshire. 01476 591022. This article is for information purposes only and does not constitute financial advice which should be sought before any action taken. The value of investments and the income from them can fall as well as rise and is not guaranteed which means you could get back less than you invest. Past performance is not a guide to future performance.

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