This piece first appeared in Saga Magazine in January 2010
The text here may not be identical to the published text  

Last chance to...

pre-empt major pension changes in April 2010

Dependent adults
Men aged 65 or more with a dependent wife under 60 have just three months to claim an extra £57.05 a week. This Adult Dependency Increase is paid with state retirement pension but it cannot be claimed after 5 April 2010. The Increase can also be paid for a dependent adult who looks after the children of the person getting retirement pension. To claim the money the man must be getting his state retirement pension and put in a separate claim for the increase. The increase cannot be claimed by a man over 65 who is deferring his state pension. If he wants to get the increase he will have to stop deferring his pension first and then claim the increase. All claims for adult dependency increase have to be made in writing and arrive at the Department for Work and Pensions by 5 April 2010. No claim will be considered after that date. Call 0800 678 1132 for a form or download it (see below).

If you claim an adult dependency increase before 6 April 2010 it can be backdated by up to three months. So you could get an initial payment of more than £700. The Increase counts as the pensioner’s income and is taxable.

The increase for a wife will normally end when she reaches 60. At that time she can claim her own state pension or a category B pension based on her husband’s National Insurance contributions.  Adult Dependency Increases are being phased out and any still in payment on 5 April 2020 will end then.

The increase is paid for an adult who is ‘dependent’ on the pensioner. So it is not paid for someone who has an income of their own above certain limits. The increase will not be paid if a dependent wife or adult works and earns more than £64.30 a week. A personal pension or one from a job counts as earnings. If they get any other state benefit up to £57.05 a week that will be deducted from the amount paid. If the other benefit is more than that then nothing will be paid. If income falls the Increase will re-start.

Adult Dependency Increase is not normally paid to a woman pensioner who has a dependent husband. However, if she claimed incapacity benefit immediately before she reached pension age and that benefit included an addition for a dependent husband then the increase can be paid with her retirement pension.

The Adult Dependency Increase is not paid equally to civil partners. There were plans to include them from 2010 but now the benefit is being scrapped that will not happen.

Under age 55 pensions
If you are aged between 50 and 54 and you want to draw your personal pension soon then you have just three months to do it. At the moment a pension can be claimed once you reach 50. But on 6 April 2010 that age will be raised to 55. The same rules apply to a company pension which can be drawn before the age of 55.

Of course, most people cannot think of retiring under 55. But drawing your pension and retiring are two different things. And it can be advantageous take your pension in some circumstances. One is to get access to the tax-free part of your pension pot. You can take out a quarter of the fund tax-free. That does mean, of course, that a quarter of your pension fund will no longer be there to grow until you retire. But if you need the money now to pay off debts or a mortgage or for some other useful purpose it can be a good idea. You do not have to convert the rest of your fund into a pension. It can be left to grow while you take what is called an ‘unsecured income’ from it. That income can be zero leaving three quarters of your pension fund invested for the future.

Another option is to take the tax-free lump-sum and reinvest it in another pension. You can do that without penalties if it is no more than £17,500. The advantage is that if you earn at least as much as the lump sum in the tax year then the money you put into your new pension will get a 25% boost from the Chancellor – more if you are a higher rate taxpayer. So a £10,000 lump sum will produce £12,500 in your new pension.

These choices may not be sensible for you. You should always be very wary of adverts that invite you to ‘release your pension’ in your fifties which are seldom good value. But if you want to use your lump-sum early and you are between 50 and 54 then act before 6 April 2010 or you will have to wait for your 55th birthday before you can consider it.

Cut-rate NI contributions
Men born between 6 April 1933 and 23 October 1939 and women born before between 6 April 1938 and 23 October 1944 can buy extra National Insurance contributions for the six years 1996/97 to 2001/02 at a reduced rate as long as they do it before 6 April 2010. Each of those six years can be bought for a special low price between £309 and £351 per year. From 6 April the cost of each year will roughly double to well over £625 a year. So if you have a gap in your record for any of those years it is as well to find out about filling it now.

The people concerned are already over pension age and will know if they have a gap in their record because their basic state pension will be less than the full amount. Each year they make up will boost their state pension by either 2% or 3% - which is £98 or £148 a year. So the money paid out will be recouped within a very few years. However, it can be difficult to find out which years you can pay back. You cannot pay any year when you were over pension age. Nor can you pay any year when you were working and paid National Insurance contributions. Women who paid the married woman’s contribution at work are barred from paying extra contributions for a further two whole tax years after they stopped working.

Full rate NI contributions
People who reach pension age on 6 April 2010 or later – men born 6 April 1945 or later, women born 6 April 1950 or later – will only need 30 years’ contributions to get a full pension. The Department for Work and Pensions estimates that reducing the years needed to get a full pension (from 44 for a man and 39 for a woman) will mean 40,000 extra women ( and a much smaller number of men) who reach pension age in 2010/11 will get a full 100% pension. However, another 20,000 – the DWP estimates – could get a full pension next year if they pay extra contributions. And if they pay before they reach pension age then the full pension will start earlier. Find out if you need to pay extra contributions by getting a retirement pension forecast.

Everyone can fill any gaps in their National Insurance record in the past six years (back to 2003/04 if paid before April). And those who reach pension age from 6 April 2008 to 5 April 2015 can also pay up to another six years right back to 1975/76. Contributions will normally cost £626 for each year bought before 6 April 2010 (though the most recent two years will be slightly cheaper). The price will almost certainly go up if they are bought after 6 April 2010.

Further information:

January 2010

All material on these pages is © Paul Lewis 2010