In Annie Shaw's latest money Q&A, a reader asks how a former ex-pat relative can top up her meagre pension now she has returned to live in the UK:
Are you eligible for a pension top-up?
A reader writes: My pensioner aunt lived abroad for many years before returning to the UK about 40 years ago. As a result she receives a state pension of only about £60 a week (just over half the basic state pension). The couple of small annuities she also receives give her very little further income.
Is there a minimum level of income which the state will make a pensioner’s income up to, and if so how does my aunt apply for this top-up?
Annie Shaw replies: The Government does indeed guarantee pensioners a minimum income. If your aunt’s income from all sources falls below the guaranteed figure, which currently stands at £148.35 a week (2014-15 rate), and she has little in the way of savings, then she should be entitled to Pension Credit to top up her pension to this guaranteed amount.
If your aunt has savings of over £10,000, then for every £500 (or part thereof) she has above this threshold, the Department of Work and Pensions will add a notional £1 to her weekly income when assessing her entitlement, thereby reducing the amount of Guaranteed Pension Credit she is able to receive.
People with some savings can, however, also get their pension topped up by something called Savings Credit, and anyone who is a carer, severely disabled or has particular housing costs might also get more.
To apply for Pension Credit your aunt can call the Pension Credit claimline on 0800 99 1234 .
If your aunt has savings that take
her over the level at which she can obtain Guaranteed Pension Credit or Savings Credit and she is seeking a secure income rather than funding her living expenses by dipping into her nest egg, then she might like to consider taking advantage of a new scheme to allow people to top up their state pension themselves from next year.
Existing pensioners and those who reach pension age before April 2016, when the reformed flat rate pension comes in for new pension claimants, will be able to get up to £25 of additional State Pension a week by making a special class of National Insurance contribution .
This will involve them exchanging a lump sum from their savings for a higher inflation-proofed weekly income. The scheme will be available from October 2015 to all those reaching State Pension age before April 6, 2016.
The cost of this new pension top-up will be based on a person’s age and takes average life expectancy into account. For a 65-year-old an extra £1 of pension a week will cost £890, while the same amount of pension will cost a 75-year-old £674.
Whether it will be worth your aunt’s while to do this would depend on whether she had the cash available, how long she expects to live – her state of health and the longevity of her relatives might be guides to this – and her attitude to handing over her cash to secure her income compared with having the flexibility of cash in the bank.
A calculator is available online at www.gov.uk/state-pension-topup. which illustrates the contribution rates based on age and the amount of extra pension required.
A dedicated telephone line is also available on 0845 600 4270. or 0345 600 4270 from mobiles.