A jubilee year for the state pension?
This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
If you’re one of 12.5mn-plus people in Britain who receive the state pension, there are two reasons to celebrate this bank holiday.
Last week, the chancellor confirmed that the “triple lock” would be reinstated next April, based on September’s inflation figures — which could put state pension payments on course for a 10 per cent uplift in 2023.
In the mood to party? Most pensioners will receive their June payment a few days early to ensure they get the money ahead of the platinum jubilee celebrations.
The state pension has been with us slightly longer than Queen Elizabeth II has been on the throne, but its recent history has been far from “happy and glorious” — especially where women are concerned.
The new state pension was introduced in 2016. Those entitled to the full amount receive just over £185 per week, which could rise to more than £203 next spring — but you need 35 years’ worth of national insurance contributions.
Caring responsibilities mean women are especially vulnerable to having gaps in their record, and thus a lower state pension. The vast majority of those receiving £100 or less per week are female.
The Queen has continued to serve into her 90s, but the equalisation of the state pension age has left many women born in the decade of her coronation working for much longer than they had planned.
If you’re seeing female friends and family members over the long bank holiday, here are some gems to pass on that could help women of all ages reign supreme in their retirement.
Women in their 70s
The most pertinent question is: are you getting what you’re owed from the state pension? Last year, the Department for Work and Pensions estimated it had underpaid 134,000 pensioners (mostly women) to the tune of £1bn, with some errors dating back to 1985.
The worst case revealed so far is a woman owed £128,000, although underpayments of several thousand pounds are more common.
Widows, divorcees and women who rely on their husband’s historic contributions for some of their entitlement are most likely to receive a payout.
The DWP is slowly checking the records of those who started claiming the state pension before April 2016, although completion is not expected until end of 2023.
The DWP said: “We are contacting anyone impacted to ensure they receive all that they are owed. Where errors do occur, we are committed to fixing them.”
Lady Ros Altmann, a former pensions minister, doesn’t think it’s acceptable for women to have to wait. “If women are chasing to find out whether they have the correct amount, they may be very much in need and should go up the priority list in my view,” she says.
Another scandal? The estimated 850,000 pensioners on low incomes who are entitled to receive pension credit, but fail to claim it.
Owning your own home or continuing to work past state pension age will not bar you from claiming, providing your income and savings are below certain limits.
Even if you only qualify for a small amount, people who get pension credit are also entitled to the government’s £650 cost of living payment, and the £150 Warm Home Discount — plus over-75s get a free TV licence.
Women in their 60s
Although many 1950s-born women didn’t bank on waiting until 66 to receive their state pension, those who are in good health could boost the value of their payments by deferring.
Currently, your entitlement will increase by just under 5.8 per cent for every year you defer — though it won’t make sense for everyone.
A few months before your 66th birthday, expect a letter from the DWP confirming the date and amount of your first state pension payment and respond rapidly if asked for any additional information.
Last year, some newly minted pensioners were experiencing delays of up to six weeks before their first payment arrived. The DWP says the backlog has been cleared but emails from some FT Money readers suggest otherwise. If you’re having issues, drop us a line via firstname.lastname@example.org.
Women in their 50s
Anyone aged 50 and over can make an appointment to see a Pension Wise adviser, the government’s free and impartial guidance service.
New laws are now in force requiring defined contribution pension schemes to give members a much stronger “nudge” towards using this service.
Although your mind may be focused on what you can withdraw from your pension, for many women in their 50s, the opposite urge should apply.
“Very often, the best advice would be to keep paying into a pension and taking advantage of the free money and huge tax advantages pensions offer,” says Altmann.
You should also check for any gaps in your national insurance record and consider how to correct these.
“Buying” extra years of contributions can be very good value, as rates of voluntary national insurance are subsidised by the government. However, some years will not count towards a higher state pension.
It’s a hideously complicated problem. Former pensions minister Sir Steve Webb is currently designing a website to make it easier for people to understand their options. The DWP’s Future Pension Centre can also help.
If you’re a grandparent or family member caring for children under 12, you could be entitled to claim national insurance credits via the child benefit system (and these can be backdated).
Women in their 30s and 40s
Hundreds of thousands of stay-at-home parents have affected the value of their future state pension by not registering for child benefit. Even if you or your partner earn too much to receive any monetary benefit, you must register to get national insurance credits towards your future state pension. Make sure the claim is in the name of parent who needs these applied to their record.
If you’re expecting a baby, finding the cash to fund pension contributions in your final months of maternity leave may be a low priority. Increasingly, couples are budgeting for this, but any help would also make a fantastic “baby shower” gift from an older relative (this has gone down very well in our family).
Having seen all of the pitfalls above, I’d advise women in their 20s to start a workplace pension as early as they can, and pay in the maximum they can afford (most employers have a sliding scale of matched contributions).
Some employers are much more generous than others — asking for details is a great question at the end of a job interview.
You don’t have to wait until your first job to start your first pension. Increasingly, grandparents are setting up junior Sipps or stakeholder pensions for their grandchildren to provide a legacy in decades to come.
So long as they are non-taxpayers, you can save up to £2,880 per year into a pension for babies and children, boosted to £3,600 with tax relief.
Considering the size of the gender pension gap, it really pays for women to know about these tips. I hope they will give your family cause to celebrate in future years.