A government scheme put in place to help pensioners who missed out on the new state pension top up their earnings failed to reach the number of pensioners expected to benefit, according to new figures.
Between October 2015 and 5 April 2017, pensioners and workers approaching state pension retirement age before 6 April 2016 were given the opportunity to increase their additional state pension by buying extra state pension years with lump sum Class 3A national insurance contributions (NICs).
The policy, announced by the then Chancellor, George Osborne, in December 2013 was designed to mollify pensioners and people approaching their state pension age before 6 April 2016 when the new state pension came in.
According to figures published by the Office for Budget Responsibility (OBR), the Treasury had expected 265,000 pensioners to opt to contribute more to top up their state pension.
However, the OBR has reported that a mere 13,000 people opted to contribute - less than 5 per cent of the government’s estimate.
The OBR states that there were ‘highly uncertain assumptions’ made about projected uptake of the scheme. Initially it was believed that a total of £870 million worth of NICs payments would be made. Yet only £225 million in contributions was received.
The OBR does however say that of those who did contribute, much higher amounts were paid in than had initially been assumed – an average of £17,000 compared to the estimated £3,200 per person.
A Department for Work and Pensions (DWP) spokesperson told Moneywise: ‘We promoted the state pension top-up through an extensive media campaign over two years which encouraged eligible people to find out more about the scheme. We were always clear that the scheme would not be suitable for everyone.’
Why did the scheme fail to reach so many people?
Kate Smith, head of pensions at financial provider Aegon comments: ‘The failure of this initiative looks to be down to affordability, with only the cash-rich able to top up their state pension.
‘The government introduced the time-limited offer to pensioners who missed out on the higher new state pension (introduced in April 2015), to boost their pension. The full basic state pension is currently £122.30 a week while the full new state pension is £159.55, leaving quite a gap to bridge.
‘Just 13,000 people, only 5 per cent of the projected 265,000, chose to pay a lump sum and top-up their pension by between £1 to £25 per week. Payments were dependent on age, with younger pensioners having to pay more for each extra £1 of state pension, as they will on average live longer, so receive guaranteed payments for longer.
‘On the other hand, the average payment was £17,000, which was five times the amount predicted by the government raising 25 per cent of its forecast. It’s likely that more younger, healthier pensioners took up the offer as they will benefit the most.
‘Although offering value for money this initiative has failed to capture the imagination of UK pensioners.’
This is article was originally written by our sister publication Moneywise.
Keep up to date with all the latest financial news and investment tips by signing up to our newsletter. Email subscribers will also receive a free print copy of Money Observer magazine.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now