In the world of state pensions, women have been the losers for so long it comes as no surprise to find they are even missing out on government attempts to improve their entitlements.
They are the victims of yet another administrative failure in the Whitehall machine. It has been calculated there is a shortfall that could be as high as £1 billion that should be available to provide full state pensions for many thousands.
For women, their National Insurance contributions are often underfunded because they have been raising children. Recent problems have been highlighted with the Government’s Home Responsibilities Protection (HRP) that offers specific groups of people protection for their basic state pensions.
This measure relates to women looking after children under the age of 16 or a sick or disabled person. This effectively reduces the number of qualifying years required to receive a full state pension to a minimum of 20 years.
HRP should be given automatically to any women who have received child benefits at any time since 1978. Effectively this means you can be compensated for nineteen years of child care without losing state pension entitlements.
This can make a significant difference to women’s retirement income as the gap between men and women’s pensions is so wide. The insurer Prudential has calculated that women who stop working this year will be getting a pension income some 50 per cent less than men.
Its research findings say a typical woman retiring in 2008 will receive just £11,291 a year via state and personal pensions and income from savings compared with an average figure of £20,790 for men.
The financial services industry is concerned that the system is not effectively recognising the time they were caring for their children.
This administrative headache first came to light last year and the government has been trawling through large numbers of National Insurance records to track the women who haven’t received HRP money they should have been given automatically. For many pensioners the state pension is an important source of income in retirement.
The amount for a single person in tax year 2008-09 is £90.70 per week and this is often enhanced by further pension accrual through the old graduated scheme, replaced by SERPS (State Earnings Related Pension Scheme) and subsequently replaced by the S2P (State Second Pension).
Should you have made maximum National Insurance contributions – 44 years for men and 39 years for women – through the various schemes, you could be in receipt of a state pension approaching £200 per week. Although the pension is paid gross, HMRC (Her Majesties Customs & Excise) tax your other income.
Pensions Minister Mike O’Brien has voiced the view that up to 73,000 women could get on average £1,400 in backdated payments as they have been receiving too little pension because the time spent caring for children or adults has not been taken into account.
The women affected will have reached 60 between April 6, 1998, and October 24, 2004, and be married to a man who is less than five years older than they are.
The Government was allowing people to make one-off payments to cover up to nine years worth of missing contributions at any one time up to retirement. Under present rules, you can pay for gaps going back to 1996. After 2009, you will only be able to go back six years.
Women who reached state pension age before October 24, 2004, could avoid making payments for the missing years. If the amount they are owed in backdated state pension is more than the cost of paying for those missing National Insurance years, the Department for Work and Pensions (DWP) will simply pay the difference.
After 2010, the qualifying period is being reduced to 30 years and therefore women should find it easier to qualify for a full state pension.
Men born after April 6, 1945, and women born after April 6, 1950, who have paid additional National Insurance will reach state pension age after the new rules have been introduced. It has been calculated that women who have paid national insurance for 39 years will have over contributed by £3,200 when the 30-year change is made.
Will you automatically be refunded the overpayment? No! You should contact the National Insurance office.
The Government claims that the reform of HRP with a reduction in the number of qualifying years required will mean that from 2010 three quarters of women will qualify for the full basic state pension. By 2025 this is forecast to rise to 90 per cent.
The advice is to obtain a retirement pension forecast from the Department for Work and Pensions DWP). You can do this by getting onto its website, www.dwp.gov.uk or by calling the pension service on 0845 606 0265 or 0845 300 0168.
The DWP can provide you with figures for your current entitlement or your projected state pension on the basis of national insurance contributions. It can also detail entitlement to HRP and SERPS and S2P. Finally, you can obtain details of years where the maximum has not been paid and the offer needed to make good the contributions.
If you are among the large numbers of women with pensions way behind the levels of their male counterparts, take advantage of the fact the government is trying to ensure a fairer state pensions system.
* Trevor Law is a director with Montpelier Group (Europe) Ltd, the privately-owned independent financial advisers located at Barston near Solihull. E mail: TILaw@montpeliergroup.com