The biggest change in state pensions since World War II begins on 6 April. It will mean more people than ever – especially women – qualify for a full state pension or at least a bigger one. Carers and mothers will get National Insurance credits to count towards the pension for every week they spend out of paid work. And some blatant pieces of sex discrimination will come to an end. But it is not all good news. The changes only affect people who reach pension age on 6 April 2010 or later. Women born before 6 April 1950 and men born before 6 April 1945 will not be included – their pension will stay the same. And there will be some changes that make things worse for some people. The changes are so big that we are devoting two months to them – this month, the basics; next month, the fiddly bits.
Thirty years labour
Men and women who reach state pension age from 6 April 2010 will need only
thirty years’ National Insurance contributions to get a full state pension. The
lucky new generation are women born on 6 April 1950 or later and men born on 6
April 1945 or later. People born before those dates needs 39 years for a woman
and 44 years for a man.
The new conditions are principally intended to help women, because they are much more likely than men to have periods of their life out of the workforce either bringing up children or caring for another adult. The Government estimates the new rules will mean an extra 80,000 women will get a full pension when they reach pension age in 2010/11.
The change will also help many men. Around one in ten men who reach pension age currently get a reduced pension. From April that will be halved and another 20,000 newly retired men will get the full pension. Many of those will have gone to university in the boom of the 1960s and 1970s and be a year or two short of a full pension. Most of them will now get one.
The new rule means that many adults in full time work will have enough contributions to get a full state pension by the time they are in their late 40s or early 50s. However, if they work they will have to carry on paying National Insurance contributions until they reach pension age. There will be no extra pension for those who pay National Insurance for more than thirty years.
The change will make it clearer than ever that National Insurance contributions are just a tax for those who are under pension age and earn their money. They are not paid on pensions nor on unearned income such as interest on savings or dividends on investments. Anyone over pension age does not pay them on earnings either.
Credits
If
you earn more than £110 a week and you are under pension age then you have to
pay National Insurance contributions. If you earn less than that but at least
£95 a week (£97 from 6 April) you are credited with a contribution. You can also
be credited if you claim some benefits including jobseeker’s allowance,
employment and support allowance or carer’s allowance. People under 18 are
credited with contributions in the tax year they reach 16 and the next two tax
years. Credits are also given to a man who is between the pension age for women
and 65. This credit will slowly disappear as women’s pension age rises to 65 by
April 2020.
From April 2010 new groups will get credits for the first time. A parent will automatically be given a full National Insurance credit for each week she (or he) gets Child Benefit for a child under 12 and does not earn enough to pay National Insurance at work. This credit will also be extended to foster parents.
An adult will also be able to get a full National Insurance credit for each week he or she spends at least 20 hours caring for a disabled adult or child and does not earn enough to pay National Insurance at work. At the moment they must care for 35 hours and claim carer’s allowance to get a credit.
Instead of credits people in these groups can sometimes get what is called Home Responsibilities Protection. Each full tax year of Home Responsibilities Protection reduces the number of years they need for a full pension. But HRP is complex and little understood and seldom ensures the people who get it qualify for a full state pension. It will be scrapped from 6 April 2010. People who reach pension age on 6 April 2010 or later who already have some HRP will have each whole year converted into a year’s National Insurance credit. But periods of less than a full year at the beginning and end of a spell bringing up children or caring for a disabled person, which did not earn HRP, will not be converted into credits. The new rules about credits will not apply to anyone who reaches pension age before 6 April 2010. There will be more details on qualifying for carer’s credits in next month’s Saga.
Reduced pension
Even after all these changes some people will not have 30 years
contributions paid or credited. They will get a reduced state pension. For each
year’s contributions they will get 1/30th of the basic pension, about
£3.25 a week from April. Before April people who had less than ten year’s
National Insurance contributions would normally get no pension at all and so
those contributions were completely wasted. But from April 2010 even a single
year of contributions will be enough to earn 1/30th of the state
pension. Another change means that contributions which are credited will count
equally with those that are paid. So in theory it will be possible for someone
with credited contributions to qualify for a state pension without having
actually paid a single one.
Category B pensions
Two major changes will affect the pension someone can claim on their
spouse’s National Insurance contributions. At the moment a wife who reaches
pension age can claim a category B pension of £57.05 a week (£58.50 from April)
on her husband’s contributions but only if he has already claimed his own state
pension. This pension (called ‘Category B’) cannot be paid on top of a pension
on her own contributions – she gets whichever is the higher. A wife who reaches
pension age after 6 April 2010 will be able to claim a category B pension on her
husband’s pension as long as he is 65 whether he has claimed his own state
pension or not. In addition husbands and civil partners who reach pension age
from 6 April 2010 will be able to claim a Category B pension on the same basis
as wives. At the moment they have limited or no rights to do so.
Adult dependants
Men aged 65 or more who have a dependent wife under pension age have just a
few weeks to claim an extra £57.05 a week. The claim must be in by 5 April 2010.
No new claims will be accepted after that date. This Adult Dependency Increase
will disappear altogether from 6 April 2020. But if you are entitled now,
claiming it could bring in around £30,000 over the next ten years before it
disappears. You cannot claim for a wife who has any other state benefit or who
has earnings, a personal pension or one from her job which total more than
£64.30 a week. Download form BF225 at
www.direct.gov.uk put ‘BF225’ in the search box or call 0800 678
1132.