Money
Pensions
Pensions: a maze for women
Hundreds of thousands of married women in their sixties who receive no state pension could get one using rules that are so complex even the Department for Work and Pensions has been getting them wrong. This article explains these rules and who can benefit from them, writes Paul Lewis
A married woman in her sixties or very late fifties may be able to get a pension – or a bigger one – and perhaps a backdated payment of thousands of pounds. But it must be stressed that not all married women can make use of these rules and some of those who can, will in fact end up no better off.
Each year thousands of women reach the age of 60 but do not get a state pension because they have not paid enough National Insurance contributions at work. To get a full pension, a woman normally has to have paid contributions for 39 years. If she has paid fewer years than that she gets a proportion of the full amount. So for 10 years’ contributions she will get about a quarter pension. However, if she has less than 10 years she will get nothing. It is very unfair but that is the way the rules work.
The latest figures from the Government indicate that more than half a million women now in their sixties reached pension age with no entitlement to any state pension. Many of them – well over half – could pay extra National Insurance contributions now and get a pension of their own. How much they have to pay and what they will get depends on their circumstances. National Insurance contributions can normally be paid up to six years late.
However, at present they can be paid back to 1996/97 and up to the tax year before a woman reaches 60. So women now in their sixties can pay several years’ contributions to get a pension or boost one they already have. Almost all of them will have paid some full contributions in the past – often before they were married – and that will provide a start towards the 10 years they need.
The gap is filled by buying Class 3 voluntary National Insurance contributions for between £309 and £405 a year. Once a woman has a total of 10 years’ contributions she will get a pension of about a quarter (normally in fact 26%) of the full pension. At current rates that is worth £22.70 a week or £1,180 for a full year. That will last for life, though it may be of no benefit once the women’s husband reaches 65 (see Older husbands, below).
Women who already get a state pension but not a full one may find it worthwhile to pay extra contributions to boost the pension they get. Each year’s contributions above 10 will increase their pension by £1.75 or £2.62 a week (it is a matter of chance which it is).
When extra contributions are paid, the pension can normally only be backdated to the date the contributions were paid. However, two groups of women can get their pension backdated to the age of 60.
• Women who made a claim for a pension at 60 and were entitled to Graduated Retirement Benefit (paid on contributions made between April 1961 and April 1975) or to some additional pension (also known as SERPS or State Second Pension) earned from April 1978.
• Women who were not entitled to any Graduated Retirement Benefit or SERPS.
For a few hundred pounds in contributions these women may get a few thousand pounds in backdated pension. For women born before October 24, 1944 the Pension Service will work out what they are owed in pension, deduct the contributions and send them a cheque for the difference. Women born later than that must first pay the contributions.
A third group who had an entitlement to Graduated Retirement Benefit or SERPS but did not claim it at the age of 60 are in a slightly different position. They cannot get their pension backdated to 60. Instead, they will get a slightly bigger pension because they did not claim it at the time. Part of that increase in their pension can be commuted to a lump sum.
Married women’s contributions
Some women will find they cannot fill the gap in their record. When the present system of pensions and National Insurance began in 1946 married women were assumed to be financially dependent on their husbands. So they were allowed to pay a lower rate of National Insurance contributions – then called the married woman’s stamp. Currently this lower rate is 4.85% of their earnings between £100 and £670 a week, but it does not count towards qualifying for a state pension. Worse than that, paying the reduced contribution means they cannot now pay a full contribution for that tax year to make it count towards their pension. Women who paid this lower rate have a gap in their record but it cannot be filled. That means many women who worked in the 10 years before pension age, paying the reduced rate, will find they cannot pay extra contributions now to get a pension.
Older husbands
Some women who can pay to fill the gap but whose husband is much older than them may not find it worthwhile to do so, because a married woman can get a pension on her husband’s contributions as well as on her own. She is not paid both these pensions; she gets whichever is the higher. The pension on a husband’s contributions is currently £52.30 a week – equivalent to a 60% pension. A woman who has paid 23 years’ contributions or less will get a lower pension on her own contributions than on her husband’s. So even if she pays extra contributions she may end up no better off. However, she can only get this married woman’s pension when her husband reaches 65. Women aged 60 whose husband is younger than that will at least have some time claiming their own pension.
Means-tested benefits
A woman whose husband claims a means-tested benefit such as pension credit, council tax benefit or housing benefit, will find that any extra pension she claims reduces the means-tested benefit he gets. In most circumstances as a couple they will be left better off, though not by the full amount of her pension. But in rare cases where their joint income as a couple is less than £139 a week they may end up no better off – though they can never be worse off.
Further help
If you think this is all ridiculously complex, you are right. Even the Pensions Minister, Mike O’Brien, has admitted that. And he confirmed that Government helplines had been giving the wrong advice to women who called. That should not now happen. But if in doubt, the independent Pensions Advisory Service is a useful place to check what you have been told (pensionsadvisoryservice.gov.uk or 0845 601 2923).
If you are already 60, call the Pension Service on 0845 6060 265 (Welsh speakers 0845 6060 275) or go to pensionservice.gov.uk.
For details of paying back contributions, call the HMRC National Insurance Deficiency Helpline, 0845 915 5996.
* This article first appeared in the January 2008 edition of Saga Magazine
