State pension changes to be felt by women before men

IF YOU thought that 2015 introduced lots of changes to pensions then, as Bachman Turner Overdrive sang: “You ain’t seen nothing yet”. This year promises more change, with alterations to pensions tax relief expected in the Budget and the new flat rate state pensions being introduced from 6 April, 2016.

While we don’t yet have the detail on the tax relief changes, it’s expected that a new single rate will be introduced for all.

We do know about the new state pension, designed to simplify rules that have become ridiculously complex. Some would argue, however, that the new state pension is now more complex, with many having no idea how much they will get in the future.

The key points to note are:

n if you have already reached state retirement age (currently 65, but rising to 66 by 2020), or will do so by 5 April this year, then your pension will be paid under the existing rules;

n for those who reach retirement age from 6 April, 2016, the new pension will be worth up to £155.65 a week;

n the amount you actually get can be higher or lower than the full new state pension depending on your National Insurance (NI) record. You need to have made ten years of qualifying NI contributions to get any pension at all and 35 years to get the full amount;

n you may be able to increase the amount of state pension you’ll receive by continuing to pay NI for the years you work until you reach state pension age, applying for NI credits or paying voluntary NI contributions;

Sounds straightforward? No, I thought not. So, spare a thought for ladies of a certain age; over the course of this decade, women’s state pension age is rising from 60, which it was until 2010, to 65 – in line with men’s pension age – by 2020. But in 2011, the coalition government at Westminster decided that the rises should be accelerated so that both men’s and women’s state pension ages reached 66 by 2020.

The initial reason that women’s pension age was being raised in line with men’s was so that both sexes were being treated equally. But increasing life expectancy means that the UK Government needs to start making pension payments later in life so that the total cost of providing the state pension does not become unaffordable.

As well as the rise to 66 by 2020, a further rise to 67 is planned by 2028 and another to 68 is likely in the following decade.

Although women’s state pension age will be no higher than men’s, it is the speed of the changes that is causing concern.

The decision that the age would increase from 60 to 65 by 2020 was originally made in 1995, giving those affected plenty of time to prepare financially.

But many women who had been expecting to start drawing their state pensions between 2016 and 2020 only found out in 2011 that they would face a delay. Men will have longer to prepare for the changes: their state pension age will start rising from 65 to 66 in 2018.

So what? Well, it means that not only are some women facing a delay in receiving state pension but it’s more likely that women will have gaps in their NI record because of raising children.

The changes have caused upset and anger and are due to be debated in the House of Commons.

It’s evident that some or all of those affected will require some assistance to determine what they have but really it may be too late, as it’s unlikely that they will be able to make alternative provision.

It’s why financial advice is so important and why you should create your own financial plan as early as possible.

The financial advisory population has long been dominated by male advisers – based on the old fashioned presumption that it was men that dealt with the family finances and therefore sought the advice – however it’s not the 1950s or 1960s anymore and society has changed.

There is a school of thought that female clients would prefer to speak to female advisers, therefore the industry should be in a position to provide this service, but presently only 16 per cent of financial advisers are female.

At Principal & Prosper we are ahead of this curve, with 45 per cent of our advisers being female, so if you’re reading this article, are concerned about the pensions changes, would like to take financial advice and would prefer to speak to a female adviser then give us a call. We’ll be happy to help.

And, of course, if you’d rather speak to a male adviser, then we’re still happy to help there too.

PENSION HISTORY

1670s The Royal Navy introduces what is believed to have been the first organised pension scheme, for its officers.

1909 The non-contributory “old age pension” is introduced by Liberal Chancellor David Lloyd-George for people over 70 years of age, paying between 10p and 25p a week on a means-tested basis.

1921 The Finance Act grants tax relief to pension schemes that satisfy certain conditions.

1942 At the height of the Second World War, Sir William Beveridge publishes his landmark report into “social insurance and allied services”, which includes his influential state welfare proposals.

1948 A contributory state pension for all is introduced, paying out £1.30 a week for single people and £2.10 for married couples, for men aged 65 years and over and women aged 60 years and over.

1959 A National Insurance act introduces a top-up state pension scheme or graduated pension, covering earnings of between £9 and £15 a week.

1978 Graduated pensions are replaced by the state earnings-related pension scheme (Serps), with rules for contracting out also being introduced.

1980 Margaret Thatcher’s Conservation government breaks the link between increases in the state pension and average earnings.

1995 A pensions act is passed in response to newspaper owner Robert Maxwell stealing £460 million from his company’s pension scheme. Pressure from the European Commission also means plans are unveiled to increase the state pension age for women.

1999 The minimum income guarantee (Mig) is introduced to give income support for the poorest pensioners.

2001 Stakeholder pension schemes are introduced to help women and workers on low-to-average incomes save more money for their retirement.

2002 Serps is replaced by the second state pension.

2003 Pensions credits with means tests are introduced to help top-up payments for the poorest pensioners.

2010 Women’s state pension age begins to rise.

2011 Chancellor George Osborne brings forward the dates on which the state pension age will rise.

Darren Scoon is strategic business manager at Principal & Prosper.

This article is for information purposes and is based on our current understanding of HMRC rules, which may be subject to change. Principal & Prosper is a trading name of Principal & Prosper Holdings Limited. Registered in Scotland No SC325344. Registered Office: 55 Melville Street, Edinburgh, EH3 7HL. Principal & Prosper Holdings Limited is authorised and regulated by the Financial Conduct Authority, number 471469.

This article appears in the Spring 2016 edition of Vision Scotland. An online version can be read here. Further information about Vision Scotland here.