On the 27th June 1967 Barclays installed the first ATM in the UK. Some 47 years later they are on every street corner, banks, shops, and we use them more than banks. I remember when the network was expanded in the UK, as I worked for a high street bank at the time. There was no such thing as a debit card in those days. Barclays had launched the Barclaycard credit card a few years earlier, and the other banks were in a joint venture called Access. The ATM cards were a plastic card punched with holes, and each one paid out £10. Unfortunately the machine retained the card every time, and it was posted back to you. I know this because this was one of my jobs as a junior clerks.
Anyway, enough of my boring reminiscing, it was the headline that grabbed your attention.
As you may (or may not) know the UK state pension is changing soon in 2016, and the number of qualifying years is changing yet again. From needing 44 years for a man or 39 years for a woman, it was reduced to 30 years for both in 2010, and in 2016 will change again to 35 years. All these changes were in conjunction with changes and increases in the state pension age to 66 for both men and women by 2020. This will further increase with the average life expectancy to 67 in 20146 and 68 by 2048. It is likely to increase further over time.
The result of all these changes is a flat rate pension, together with an increase in the retirement age, in some cases, particularly for women, quite substantially. One side benefit for some people is that their pension entitlement has increased because of the reduced number of years.
Having said all that, you have always been able to buy additional years if you were short, by paying a lump sum to the government. This remains the case for the new flat rate pension and, in my view is tantamount to the government giving you an ATM card to draw out extra money each week. Let me explain the rationale.
Under the new flat rate pension scheme, the amount payable in 2016 is expected to be around £144. As I said earlier, you will require 35 years contributions to qualify for this amount. For this note we will ignore any additional state pension or contracted out deductions. So, if you left the UK in the last few years, and you had built up 32 years NI contributions, you had enough to qualify for the full basic state pension. Fast forward to 2016, and you will now only receive 32/35 ths, or about £12 less than the flat rate. Even though this is more than you were expecting, you can still get this amount by topping up your National Insurance contributions. The government has a tariff depending upon different circumstances, for someone living abroad, and not working its £13.90 a week. So one full year costs £722.80 and three years £2,168.40. The qualifying criterion is that you must, at some stage have paid three years full contributions or lived in the UK for three years continuously.
So, why on earth would I want to pay the government even more money I hear you cry, I’m still paying them enough in tax. Well, this is how it works. You pay them £722.80 for one NI year. For this, when you receive your pension you are paid £4.12 extra pension each week. So, forgetting interest on your capital, which in any case is currently diddly, after 170 weeks or 3.27 years, you will have been paid back all your capital investment: every payment after that is bunce. If I wrote this article about a private scheme, you would say it was some sort of pyramid scheme. But it’s a guaranteed investment, with no risk, and a return that is unequalled anywhere.
So, if you are short of years, and have the capital, then I recommend that you think seriously about this opportunity, and apply for your ATM card as soon as possible. Details can be found here
If you enjoyed this blog, it was written by me Philip Carroll; if not then it’s probably been edited by Donna Walrond.
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