Women lose out in new pension rules!

• Summary of Changes

What are your Pension Rights?
By Caroline Anstee - Elements IFA

According to a recent Department for Work and Pensions (DWP) paper, just 30% of women reaching State Pension age currently qualify for the full basic State Pension, compared with around 85% of men. With women increasingly facing their retirement years alone either because they are outliving the men, have not married, or are divorced, the imbalance clearly needs to be redressed. Yet despite reforms in the offing, the Government’s firm stance on certain aspects of pension regulations will still see many women not entitled to the full pension. So what has gone wrong and what can women do, if anything, to safeguard their position and look forward to an affordable retirement?

Putting pension reforms in place

Changes to state pension provisions are certainly long overdue.  The forecast pension squeeze has been well documented as the baby boomers of the 60s reach retirement age in better health than ever before, leaving a dwindling tax-paying population to support them.  And as the Government is well aware, it's women who will suffer most post-60.

The main reason that women’s pension payments pale against men's is because they traditionally pay in less. Many women take time out of their careers to raise a family, and it more often than not falls to women to care for elderly or sick relatives. All the time, they may be failing to pay pension contributions with devastating effect when it comes to relying on what the State will pay at retirement. It's fair to say that the Government has gone some way to addressing this in the past by deeming that women need pay contributions for only 39 years (known as ‘qualifying years’) as against 44 years for men in order to qualify for the full State Pension. Until the first reforms kick in 2009, anyone who has not worked for the required number of qualifying years can make voluntary Class 3 National Insurance (NI) payments into the system for the years they have missed. This can be back-dated as far as 1996. So far so good.  But all this is set to change, and it will be the people who’ve made these extra payments that are most likely to lose out.  What’s more, the revised system will hit women currently over 58 hardest i.e. those who are closest to retirement age, and who can do least to redress their personal situation.

What’s changing?
The six-year cut-off
The big change to be introduced in 2009 is that there will be a cut-off date of six years to make up contributions.  So if a woman is nearing retirement and realises that she won’t be eligible for the full State Pension, she can pay contributions only for the six years prior to this. No matter if she has spent ten or fifteen saving the State money by caring for sick or ageing relatives at home, has juggled low-paid jobs which left her below the national insurance threshold rather than claim benefits or has stayed at home to look after her grandchildren to enable her children to work. It’s women in these circumstances that all too often simply don't have access to the information they need and don't have the time to investigate.

The decision did not go unnoticed. In July 2007, Baroness Patricia Hollis, a former DWP minister and tireless campaigner for fairness in women’s pensions, sponsored a Lords amendment to amend the six year-cut-off date which will catch out around 40,000 people annually. A vote at the end of the House of Lords debate on the subject was welcomed by 179 votes to 86 against. It was Gordon Brown’s first defeat in parliament. So why hasn’t the amendment been implemented? Because the Government pushed the bill through without the amendment and it wasn’t until Baroness Hollis raised the issue again in December last year that the Government admitted its failure to act. Its rationale is no doubt that this is an issue which affects relatively few people, and the costs could not be justified. 

The result means that women born before 6 April 1950 could receive a significantly lower pension than someone whose birthday is just a day later.

30 years to qualify
The other key change is that from 6 April 2010, the Government is reducing the number of qualifying years to 30 for both men and women. On the face of it, this is good news for women who are more likely to have notched up fewer qualifying years - and it's certainly being heralded as such by the majority.  But here too there's a hitch. Under the higher qualifying periods, it was possible to make-up lost years to reach the magic figure of 39 years for women.  So nine years' top up will in effect be lost. Yes, refunds are being offered but only for payments made since 25 May 2006 when the 30 year reform was first announced. This means a woman who paid extra contributions (of up to £3,200) could only get a proportion of back- money, she may have struggled to find, but persisted to ensure a comfortable retirement, and which is now resting in the State's coffers.

Caring for the carer
In a double blow, the Government has also passed changes to its current Home Responsibilities Protection (HRP) system which benefits anyone looking after a child under the age of 16 or a sick or disabled person. By 2010, HRP will be replaced by a system of credits for parents and carers which will count towards State Pension entitlement. This is an improvement as it will be possible under the new scheme to build up entitlement to the basic state pension on these credits alone.

What to do next
Unsurprisingly, the Government has done little to publicise these changes.  If you enquire, you’ll generally be directed to the Department for Work and Pensions website which should enable you to calculate how many qualifying years you have accrued and therefore whether you need to top up your contributions. But guess what – it's out of action until the autumn of 2008!
Instead, you should:
- Work out how many years you have worked for and if it’s less than 39, contact the Pensions Service
- Write to your local MP to raise the issue
- Speak to an independent financial adviser to review your pension provisions, savings and investments.  Most offer an initial consultation free of charge.

Conclusion
Once again it seems that the fairer sex gets dealt the unfair deal.  Not only is it still women who traditionally forsake their careers and earning potential to raise children and care for sick and ageing relatives, the Government punishes them for doing so by effectively reducing their income in retirement.

Yes, the State has gone some way to resolving the issue by reducing the number of qualifying years, and with the requirement for men and women aligned, there will be no excuse for fathers not to take a career break to bring up the children! But its moves have not gone far enough to protect and care for the increasing numbers of women who face retirement alone and in poverty. Let's hope Baroness Hollis and her ilk continue the campaign to make pension payments fairer for all women whatever their chosen path through life.

For a summary of the changes - click here

Further information is available contact The Pensions Advisory Service Helpline 0845 600 0806 or visit their website www.pensionsadvisoryservice.org.uk

Information provided by : Caroline Anstee - Elements Tel: 01924 351000 Email: info@elementsifa.co.uk  Website: www. www.elementsifa.co.uk