# Talk

## To think that topping up the State Pension is a fair old gamble?

(15 Posts)
lougle Thu 09-Mar-17 17:56:01

"You can choose to top up your State Pension by between £1 and £25 per week. How much you’ll need to contribute depends on:

how much extra pension you want to get each week
how old you are when you make the contribution

Example
You are 68 years old in October 2015. You decide that you want to get an extra £5 per week (£260 a year) on top of your pension.

The cost of an extra £1 per week for a 68 year old is £827, so you multiply £827 by 5.

You’ll make a lump sum payment of £4,135."

So if you are 68 years old, you have to gamble on living at least 16 more years, until you are 84 to make your investment back.

Yet, according to the Office for National Statistics, average life expectancy for men is 79.2 years (76.6 in Scotland) and for women 83.0 years (80.8 in Scotland).

They don't mention that on the pension top-up website...

Man10 Thu 09-Mar-17 18:31:07

According to the calculator below, a 68 year-old female has a life expectancy of 21 years.

visual.ons.gov.uk/how-long-will-my-pension-need-to-last/

Man10 Thu 09-Mar-17 18:31:30

Your life expectancy at birth and your life expectancy at 68 are not the same thing.

StatisticallyChallenged Thu 09-Mar-17 19:16:54

What Man10 said - average life expectancy as quoted in those stats isn't really relevant.

It's also worth noting, if you dig about, that this payment is index linked (linked to CPI) which means it isn't £1 per week every year.

For a rough comparison, annuity rates with 3% escalation (rough comparison) at the moment for a 68 year old are around 4%. So paying in £4135 to an annuity would get roughly £3.18 a week

titchy Thu 09-Mar-17 19:19:39

Your life expectancy at birth and your life expectancy at 68 are not the same thing.

I was going to say that! Fun fact - the older you are, the longer your life expectancy.

Man10 Thu 09-Mar-17 19:42:53

paying in £4135 to an annuity would get roughly £3.18 a week

Or to put it the other way around, a £5 a week income would cost you £260/4% = £6,500 to buy in the private sector.

loaferloveforyou Thu 09-Mar-17 19:51:26

You will need to factor in the spouses part too. Between 50-100% will be paid to a spouse for their life too.

The annuity calculations don't actually match up because that's what would be (roughly) paid on a singe life. Would need a lot more than £6500 to factor in a spouses pension.

One would hope anyone considering topping up their state pension would factor in their health too.

It's a gamble either way. Imagine living to 100 thinking "if only I topped up my state pension when I could"

ImperialBlether Thu 09-Mar-17 19:52:59

Can you explain it again for those who aren't feeling too bright at the moment?! How much do you pay in, when and how?

loaferloveforyou Thu 09-Mar-17 20:28:17

It's for people over state pension age. They can top up their pension of between £1 and £25 a week. The cost depends on how old you are. You have until 5 April to do it.

StatisticallyChallenged Thu 09-Mar-17 20:37:42

I hadn't dug enough in to the spouses bit, but yes it would be a fair chunk lower with that taken in to account loafer.

lougle Thu 09-Mar-17 23:59:28

I hadn't dug that far. It still seems quite a gamble. But then I suppose I work in critical care, where I see a relatively high percentage mortality and a relatively low life expectancy, compared with the wider hospital community and certainly compared with society as a whole.

loaferloveforyou Fri 10-Mar-17 09:24:38

Yeah it's a gamble. A gamble on how long you live.

If I knew I needed an extra £25 a week to meet my outgoings and I had the money to pay for it then why not? It may be that it ends up as a waste of money, but at least I can relax knowing that no matter how long I will always have this income to meet my outgoings, rather than living off the lump sum used to top up the pension and hoping that it will last me until I die.

As PP said, you wouldn't get as much of an annuity with the same value lump sum so it's actually quite generous.

It's all a bit moot soon as it stops on 5 April anyway.

StatisticallyChallenged Fri 10-Mar-17 10:09:15

It's a gamble either way- if you don't take out extra state pension and then live longer...

Same applies to buying annuities overall. Buying is basically a gamble that you will live long enough for it to be good value. Not buying it is a gamble that you'll die before you run out of cash.

Depends on your attitude to risk really.

loaferloveforyou Fri 10-Mar-17 10:26:38

Stat you put it a lot better than I can!

StatisticallyChallenged Fri 10-Mar-17 13:14:39

I think people tend to forget the other side of the gamble when they're weighing up whether to buy or not!

Join the discussion

Registering is free, easy, and means you can join in the discussion, watch threads, get discounts, win prizes and lots more.

Register now »