Investments

State Pension Top-Up Flop As Savers Flock To Bonds

Pensioner bonds won the dash for cash with state pension top-ups, according to the government.

The Treasury has forecast that over 55s approaching retirement would fork out £900 million to boost their state pensions in 2015 and 2016, but have revised the figures down to a meagre £65 million after the top-ups were shunned.

Instead, pensioners rushed to invest in National Savings and Investment guaranteed growth bonds for the over 65s

The bonds offered 2.8% over 12 months and 4% over 36 months with full return of the investment.

Around £1.3 billion was staked against the bonds compared to £130 million into the flop state pension top-up.

Treasury admits low take-up

The top-up allowed people who lacked the full 35 qualifying years for the full state pension payment to buy up to an extra £25 a week payment for £22,500.

However, unlike the bonds, the cash invested is not returned but paid out over the term of the state pension.

The pension payment is guaranteed and rises with inflation.

“The take up has been much lower than expected,” said a Treasury spokesman.

Finance industry professionals argued the top-up was good value when compared to the return on a guaranteed lifetime income from an annuity.

The cost of £1 of annuity income would cost £1,720, according to the Institute of Fiscal Studies, while £1 of state pension income was priced at £890.

Competing offers for pensioners

Former pensions minister Steve Webb explained the state pension top-up was designed to help savers collecting a poor return on their money after years of interest rates pegged at 0.5% and to aid those who retired before April 2016 who missed the new flat rate state pension.

“Within a month of the state top-up starting, pensioner bonds were announced and targeted the same savings and the same people,” he said.

State pension top-ups are not a new idea – workers who lacked qualifying years can buy the time by making extra national insurance contributions.

“People do not realise how much the state pension is worth when index linking and the payment guarantee are taken into account,” said Danny Cox of pension provider Hargreaves Lansdown.

“Buying the extra years is worthwhile, but many people spurn the idea in favour of other spending priorities.”

1 thought on “State Pension Top-Up Flop As Savers Flock To Bonds”

  1. The reason why they don’t want the top-up pension is that it is much better to to defer the state pension as it is much cheaper..

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