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Boost to womens' pensions
The Government has proposed an amendment that will enable women aged between 53 and 60 to pay a further six years of national insurance contributions into their basic state pension. It is estimated this will give them an extra £18 a week from 2010.
Currently, people can only make up six years of NI contributions but, under the planned changes, those retiring between April 2008 and 2015 will be entitled to buy a total of 12 years' worth.
James Purnell, the secretary of state for work and pensions, unveiled the changes following concerns about the disadvantages faced by those with shorter work histories - women, for example, who have taken time out of work to raise a family or care for elderly or disabled relatives. "This (proposal) is fair, affordable and straightforward and will give more people the chance of a more secure future in retirement," Purnell said. "Since 1997, we've reduced absolute pensioner poverty by 1.9 million, and our radical reforms of the state pension have made it fairer, more generous and more widely available."
Just 35% of women currently qualify for a full basic state pension. With the changes, however, the Government estimates that, by 2010, about 75% will be entitled to a full basic state pension, rising to more than 90% by 2025.
The measures are part of a programme of reforms that will see the state pension system offer a fairer deal to everyone. Others include reducing the number of qualifying years for a full basic state pension to 30 for men and women.
Gordon Lishman, director general of Age Concern, said the announcement represented a victory for a generation of women that had been ignored by previous pension reforms. He added that Gordon Brown was honouring his recent pledge to give women a fairer pensions deal. "We're delighted that thousands of older women will be given the opportunity to build up a better state pension," he said. 'For too long they have been dealt a poor pensions hand, simply for choosing to stay at home and care for their family.'
Changes to pensions
"This change will greatly help a significant number of stay-at-home mothers and carers who, due to their inconsistent working patterns, have not been able to build up a full basic state pension," she said. "If the amendment goes ahead, they will be able to take steps to increase their basic state pension retirement income."
But not everyone is so impressed. The National Pensioners Convention has dismissed the Government's announcement that people will be able to buy back up to six years of missing NI contributions as "window dressing".
Dot Gibson, the vice-president of the NPC, claimed that up to five million women pensioners failed to get a full state pension because of time spent raising children, caring for relatives or working part-time and, despite the changes, many would not be able to buy back these lost years.
"Many are living below the poverty line," she said. "Up to a million older women may not even be alive by 2010 when the Government intends to make the change." In addition, an extra year's pension would only provide a measly £2.35 a week more than the state pension.
"The real indictment is that even a full state pension is only £90.70 a week - more than £60 below the official poverty line and among the lowest in Europe," Gibson added. "Women's pensions are a national disgrace. No amount of window dressing will mask the fact that the basic state pension must be raised across the board for all pensions to help them avoid poverty in retirement."
Dr Ros Altmann, an independent policy adviser, agreed. She insisted the announcement was "more spin than substance" and pointed out that the details in the small print meant one had to be careful about how it was interpreted. 'These measures are a further rearrangement of the deckchairs on our sinking state pension ship," she said. "They will make some people better off but won't solve the problem that our system is far too complicated."
There are plenty of unfair elements associated with the qualification criteria, Altmann believes, which make it impossible for people to understand. "It's not fit for purpose and we need a radical rethink of how we support our elderly population," she said.
At the moment, the Government charges around £420 for each year of contributions that is bought, so someone needing an extra 10 years' worth would need to pay out more than £4,000, giving them an extra £23 a week income. This cost is also expected to rise in the future.
Only people who already have 20 years of NI contributions will be able to buy back those extra years, while anyone who retired before April 2008 will not be able to purchase anything at all, so the changes will not benefit all women.
"Politicians would rather tweak our existing system than design one that is fit for the 21st century," Altmann added. "A flat-rate citizens' pension for everyone over a particular age would finally sort out our problems. When will we get it?"
Married women
Other women are also affected. It's estimated there are millions in poorly paid jobs who are not earning enough to make them eligible for a decent pension, but who simply do not realise this is the case until it's too late to do much about it.
So should you take advantage of the changes that are being planned? Not necessarily, according to Altmann. A final decision on whether or not it's worthwhile will depend on your personal circumstances.
There are plenty of risks associated with buying back missing years of NI. For example, it's not worth anyone who might qualify for the means-tested pension credit buying back the missing years. "People would probably be wise to wait until just before retirement before making their decision, because then they'll be in a better position to judge whether this is the right thing to do," Altmann added.
The plans outlined by the Government have also turned the spotlight back onto the world of long-term savings and, in particular, the attitudes of people towards putting money away for their retirement. For example, a study by financial services company The Hartford, conducted in conjunction with YouGov, revealed that more than half of women aged between 45 and 54 harboured significant concerns that they would run out of money in retirement.
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