Workers could get 62,000 in exchange for state pension benefits

Better-off workers could get lump sums of up to £62,000 from the government to buy out their entitlement to the top-up state pension according to a senior actuary.

Ministers have promised to honor any entitlement to the second state pension and Serps when a flat rate state pension is introduced early in the next parliament.  As this would mean administering two types of payment side by side the Government may choose to pay a lump sum in lieu of the top up payments.

Independent Actuary firm Barnett Waddingham estimate that the cost of buying out the entitlements could be £26,000 for those on average incomes but as much as £62,000 for those who have built up larger top-up pensions.  Around 15% of pensioners could be eligible for a lump sum.

The lump sum amounts will ensure that pensioners are paid any extra benefits they are entitled to from the Serps/second state pension they have accrued to date.  It will also seek to re-dress the fact that many higher earners will get less than they would have done under the old system when the new flat rate pension of around £140 per week comes into effect.

However, the calculation of the lump sum may not be that straightforward as Malcolm McLean from Barnett Waddingham pointed out;

“The calculation of the lump sum might be difficult to assess as it would need to take account of average projected life expectancies and could have tax implications, not to mention that buying out past rights would require capital upfront, which the Government can’t spare right now.”

He also added “Whatever the eventual outcome I fear the simplified state pension will not be as simple as we might have hoped…the practicalities of how to deal with accrued rights, one of the most important issues, are still very unclear and yet to be confirmed.”

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