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Boost your state pension
By Hannah Ricci
It's no secret that women get a pretty raw deal when it comes to the state pension. We need to make 39 qualifying years of national insurance contributions to be eligible for the full state pension - currently £87.30 a week - and 10 years of contributions to be eligible for just 25%. When you consider that women are more likely to take time out of work to bring up children and care for relatives, it's not surprising that just 30% of women qualify for the full basic state pension, compared with 85% of men.
The Government isn't doing much to help matters. Although it plans to cut the required number of years of NI contributions to 30 for men and women in April 2010, it made a disappointing u-turn on proposals to allow us to buy back missing years at the end of 2007.
Last summer, the Government faced overwhelming opposition in the House of Lords when an amendment to the 2007 Pensions Bill was passed by 179 votes to 86. The amendment, put forward by Baroness Hollis, was to give people the chance to buy back up to nine years of NI contributions, from any part of their working life. This would have potentially boosted retirement income for thousands of women and carers by increasing their chances of qualifying for the full state pension. Yet in the week before Christmas, Pensions Minister Mike O'Brien sneakily backtracked, announcing that there would be no change to the current rules.
And while the 2010 changes are welcome, Webb points out that those women retiring before then will be £27,000 worse off over the period of their retirement.
Married Women's Stamp
Millions of women who are currently at or nearing retirement age were offered the chance to pay the married women's stamp between 1948 and 1977, which was basically a reduced rate of national insurance.Yet those years when the stamp was paid do not count as 'qualifying years' towards the woman's own pension, instead they get a pension worth 60% of their husband's state pension - which explains why many women receive such a meagre amount.
The stamp was abolished in 1977 for women starting work, in recognition that it no longer reflected the changing relationships between men and women. However, there are thought to be thousands of women in low-paid or part-time work who are totally unaware of the fact that they're not earning the right to their own state pension.
Take responsibility
Millions of women are not aware of gaps in their NI contributions and the impact on their eligibility for the state pension until it's too late.
However, until the Government steps up its efforts, it's up to women to take responsibility themselves. The first step, says Anna Sofat, an independent adviser at AJS Wealth Management, is to apply for a state pension forecast from the Department for Work and Pensions.
Buyback options
Under current rules, women can buy back NI contributions for six preceding years, so for someone retiring it will be the six years leading up to state pension age. While this is helpful for some, for many women the gaps in their records come from earlier in their working life due to low-paid, part-time jobs or time spent as carers.
However, Webb has uncovered some further buyback options for women who are not drawing a full state pension due to gaps in their NI contribution records. He says that around half a million women are entitled to "buried treasure with their name on it".
It works like this. At the end of each year during your working life, HM Revenue and Customs checks if you have paid enough NI contributions for a full 'qualifying year' to count towards your state pension. If you haven't, they'll send you a 'deficiency notice' giving you the opportunity to fill the gap by paying voluntary Class 3 NI contributions.
However, during six years between 1996/1997 and 2001/2002, HMRC didn't send these letters, which meant that a lot of people who retired during or after this period were not made aware of gaps for those years. The government subsequently set up a special scheme to make it easier for people to fill these gaps.
This is good news for those who missed out.
The cost of buying back depends on which tax year you need to fill. It increases from £309.40 in 1996/1997 to £351 in 2001/2002, so a pretty small sum considering how much you stand to boost your pension by.
If you were born between 6 April 1938 and 23 October 1944, particularly generous arrangements apply, says Webb. "You don't have to find the cash upfront to buy back the missing years; you can offset the cost against the lump-sum pension that you become entitled to."
Your ability to buy back years and whether it will provide a worthwhile boost to your retirement income depends on a number of factors. These include your (and your husband's) age; whether you're drawing your own state pension or 60% of your husband's; whether you paid or are paying the married women's stamp, and whether you're receiving any means-tested benefits. Due to this range of factors the action you need to take varies between women.
Personal provision
If, after assessing your state pension entitlement and buyback options, you find yourself still facing a cash-strapped retirement, you'll need to boost your personal pension provision. While this isn't an option for women who are already retired, for those who are below retirement age it's never too late - or too early.
Women should always contribute to their company pension scheme if they have access to one, as employers usually pay in on your behalf as well.
If your company doesn't offer a pension or you're self-employed, open a personal pension. This will offer a selection of funds in which to invest your contributions, but exactly which ones you choose will depend on your retirement age and attitude to risk.
It's also important to review your pension regularly to ensure it's on track to meet your goal retirement income, and whether you need to switch funds or increase your contributions. Sofat says all pension payments should be index-linked so that they rise year on year.
Personal and company pension schemes receive tax-relief at your own marginal rate, which means the taxman boosts your contributions by 20% from 6 April if you're a basic-rate taxpayer and 40% if you pay tax at the higher rate. Even if you don't work, you can pay in and receive tax relief on £3,600 a year, so it's worth paying in any income you have or asking your partner to contribute on your behalf.
If you receive a windfall, such as a work bonus or endowment payout, paying this into your pension will also go a long way to boosting your retirement pot.
The key to pension contributions is to try not to stop because it can be very difficult to start again. 'When you go on maternity leave, for example, it's tempting to stop that £100 a month pension payment, but it'll have a huge impact on your overall fund, so try to keep it going or at least contribute something towards it,' advises Sofat. It may not feel like much, but when you come to retire you really will notice the difference.
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