Women approaching retirement are still unsure about changes being made to the state pension in 2010.
A new pensions helpline for women, run by The Pensions Advisory Service (TPAS), has been inundated with calls since it opened last month. Most callers have been seeking information about the changing retirement age and the number of national insurance qualifying years needed for the state pension.
Malcolm McLean, of TPAS, says: “These changes are little more than two years away. They could have a material effect on women's pension entitlements and need to be understood and taken into account in developing their retirement plans.”
State pension provision depends on how many years you have made national insurance contributions (NICs). To receive a full state pension, which is £87.30 a week, men currently need 44 NIC qualifying years while women need 39. But from April 6, 2010, everyone will need only 30 NIC years to qualify. Although this is good news for women, their pension qualifying age is gradually increasing from 60 to 65, in line with men.
Currently, only 30 per cent of women reaching state pension age are entitled to a full state pension, compared with 85 per cent of men. This is mainly because many women take time out of work to look after children or relatives and are more likely to be in low-paid jobs and therefore do not earn enough to make NICs. The changes in 2010 aim to tackle this problem.
Although the new measures should help, they have created a “cliff edge” where a woman who turns 60 on April 5, 2010, will need 39 qualifying years and a woman who turns
60 a day later will need only 30. And because the state pension age for women will increase to 65 between 2010 and 2020, many women who will be in their sixties between these dates are unsure when exactly they will be able to start drawing their pensions.
The state pension system is particularly complicated for women and is often dependent on marital status. Anna Pearson of Help the Aged, says: “The state pension system has been based on the assumption that women would be reliant on their husbands during retirement. Of course, this is now rather outdated.”
A married woman who has not accumulated enough qualifying years to receive a full state pension is entitled to 60 per cent of her husband's pension. So if the husband
was drawing a full state pension, his wife would receive £52.30 a week. Divorced women can have an ex-
husband's record of qualifying years, up to when they divorced, substituted for their own. So if an ex-husband had obtained the full 44 years at the point of divorce, the ex-wife would receive the same amount he receives, £87.30 a week. If a woman remarries before state pension age, she will lose her ex-husband's pension rights. But if she remarries after state pension age, she will keep the ex-husband's rights. A widowed woman also takes over her husband's contributions up to the point of his death.
There have been several other measures over the past 50 years that have aimed to address the imbalance between men and women's pension entitlements. The main one is home responsibilities protection (HRP), which allows the number of NIC qualifying years to be reduced to 20 if a woman has spent time at home since 1978 caring for children.
However, the HRP system is being replaced from April 6, 2010, by a new weekly NIC credit for those bringing up children up to the age of 12 and for those who spend at least
20 hours a week caring for severely disabled people. The years before April 6, 2010, that were covered by HRP will be converted into years of credit. The credits have the effect
of treating you as having paid a qualifying NIC.
Although you do not have to apply for HRP - it should be given automatically - you should obtain a forecast from the Pensions Service to ensure that you have been allocated the right amount of credit.
Women can improve their pension records by “buying back” qualifying years when they have not paid enough. However, they can do this only for the preceding six years
- although there is currently a concession that allows missing NICs from as far back as 1996-97 to be bought.
Anna Pearson, of Help the Aged, says: “Voluntary contributions are helpful, but for many women the gaps in their records will come from earlier on in their working lives, often as a result of low-paid part-time jobs or caring. So the ability to buy back contributions for the past six years can be of limited use.”
The Pensions Advisory Service helpline for women is on 0845 6012923 and there is an online calculator that tells women when they will reach their state pension
age at
www.pensionsadvisoryservice.org.uk.
CASE STUDY: MIND THE GAPS
JUDITH HOWARD, above, is single and has never been married. The 61-year-old had a ten-year gap when she was not paying NICs because she was completing postgraduate studies in languages and music. This means that she has only 32 years of contributions, seven fewer than required for a full state pension.
Ms Howard, who runs a small organ-making business in South London, is unable to “buy back” any NIC years because her NIC “gap years” occurred before 1996. She does have an income from a personal pension and says: “I saved £100 a month for many years. This will give me a pension pot of about £30,000 and an annual income of about £1,500. Most of that will probably go on council tax.
I estimate that I will need a further £5,000 a year, but I don't know where the money will come from.”
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