People reaching State Pension age before 5 April 2016 have the chance to top up their state pension by up to £25 per year by making class 3A voluntary contributions before 5 April 2017.

The additional pension receivable will be indexed linked and on death a surviving spouse will be entitled to 50% of the additional amount for the remainder of their lifetime.

The top up opportunity is aimed at those who will miss out when the new flat rate state pension is introduced from April 2016.  Everyone who reaches state pension age after 5 April 2016 who has 35 years of National Insurance Contributions will receive the same rate of state pension starting at £151 per week.

The government is concerned that some groups, such as women, self-employed individuals and lower paid employees, who either do not have the full 35 years contributions, or who were not able to accrue rights to the additional state pension while they were working, and who have no other opportunity to top up their pension will miss out as a result. 

Who is eligible?

Existing state pensioners and those who will reach state pension age before 5 April 2016, so women born before 6 April 1953 and men born before 6 April 1951, are eligible to make the Class 3A contributions.

How much does it cost?

The cost of the top up will depend upon your age and the amount that you wish to top up.

HMRC have published a table showing how much must be paid by individuals aged between 63 and 100 in order to purchase an extra £1 per week state pension income.  Other than the starting age, there is no discrepancy between the amounts payable by men and by women.

Payments are made by lump sum and there is a cooling off period of 90 days.

Some examples:

The table below gives some examples of the cost of topping up the pension by £1, £10 and £25 per week for individuals at different ages:

Age £1  £10  £25 
65 £890 £8,900 £22,250
70 £779 £7,790 £19,475
75 £674 £6,740 £16,850
80 £544 £5,440 £13,600
90 £270 £2,700 £6,750

HMRC's table showing top up costs can be found at this link

Are there any alternatives?

Those who are still approaching retirement but who do not have enough years of contributions to qualify for a full pension should consider their entitlement to pay voluntary class 2 or class 3 contributions.  Class 3 contributions currently cost £733.20 for a full year and class 2 contributions cost £145.60.  The resulting increase in state pension from filling in the gaps in contribution years will be greater than the top-up rate for the same payment.

Those who are still approaching retirement could increase their starting rate of state pension by deferring receipt.  For every five weeks the pension is deferred, the starting amount increases by 1%.  This is the equivalent of over 10% for every year of deferral.

Is top up worth it for me?

Whether the top up payment is worthwhile or not will depend upon circumstances, and there is obviously an element of risk involved as the ultimate payout depends upon lifespan.

Topping up is unlikely to be beneficial for those who have a shorter life expectancy, however those with a longer life expectancy, or those who have younger spouses that could benefit from the additional 50% payouts might find it a more attractive proposition.