State pension age reform leaves ‘large number of women worse off’

A report published by the Institute for Fiscal Studies (IFS) has suggested that women aged between 60 and 62 have become ‘worse off’ as a result of the recent rise in the state pension age.

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Between 2010 and 2016, the state pension age for women increased from age 60 to 63. The government intends to align the state pension age for women with the state pension age for men, which is currently age 65.

The report found that women between the ages of 60 and 62 have experienced a £32 reduction in their weekly household income since the change.

Poverty rates amongst women in this age group have risen ‘sharply’, the IFS suggested.

Jonathan Cribb, Senior Research Economist at the IFS, said: ‘The tax and benefit system is much more generous to those above the state pension age than those below it.

‘Since both rich and poor women are losing out by, on average, roughly similar amounts, the reform increases income poverty rates among households containing a woman who has reached age 60 but has not yet reached her state pension age.’

Government brings forward rise in state pension age

The government has announced that the rise in the state pension age from 67 to 68 will be phased in between 2037 and 2039, rather than between 2044 and 2046, as was previously planned.

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The change could potentially save £74 billion by 2045/46, the government said.

Individuals born between 6 April 1970 and 5 April 1978 will be affected. The government stated that no one born on or before 5 April 1970 will see a change to their proposed state pension age.

David Gauke, Secretary of State for Work and Pensions, commented: ‘Since 1948, the state pension has been an important part of society, providing financial security to all in later life.

‘As life expectancy continues to rise and the number of people in receipt of state pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations.’

However, the Trades Union Congress (TUC) has warned that the state pension age is now higher than many individuals’ life expectancy.

Frances O’Grady, General Secretary of the TUC, stated: ‘A decent retirement is a right for us all, not a privilege for the few.

‘Rather than hiking the pension age, the government must do more for older workers who want to keep working and paying taxes. Workplaces and working patterns need to adapt to their needs.’

State pension age ‘could rise to 70’, report suggests

An analysis carried out by the Government Actuary’s Department (GAD) has revealed that workers aged 30 and under may not receive a state pension until the age of 70.

The GAD has suggested that the state pension age could rise to 70 as soon as 2054.

Under existing legislation, the state pension age for those born after 1978 is set to rise to 68. Currently, the earliest age at which a woman can begin receiving a state pension is 63, whilst a man can start to receive a state pension at the age of 65.

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By the end of 2018, the state pension age will have risen to 65 for both men and women.

The government is expected to address the rise in the cost of pensions, which is caused by longer life expectancy and therefore an increasing ratio of pensioners to workers.

Commenting on the issue, Steve Webb, the former Pensions Minister, said: ‘It is one thing asking people to work longer to make pensions affordable, but it is another to hike up pension ages.’

State Pension warning to be issued to thousands

The Government has stated that it will send letters to more than 100,000 individuals who may potentially miss out on the new State Pension due to their lack of national insurance contributions (NICs).

A rule change came into effect during April requiring savers to have accrued a minimum of ten years of NICs in order for them to be eligible for the Government’s new State Pension.

A Work and Pensions Select Committee report has claimed that many individuals would have been oblivious to this rule change, and may, in fact, not be entitled to receive a weekly pension payment.

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Only those who have made NICs for 35 years will be entitled to the full weekly amount of £155.65. Savers with NICs of between ten and 35 years will be eligible to receive a proportion of this amount.

However, individuals who have made fewer than ten years of NICs will not be entitled to receive any amount.

The Department for Work and Pensions (DWP) has stated that it intends to write to individuals most at risk before the end of 2016.

From 6 April 2016, eligible retirees have been able to claim the new State Pension if:

  • they are a man born on or after 6 April 1951
  • they are a woman born on or after 6 April 1953.

From 2020, the State Pension age (SPA) will be equalised for men and women, and will be set at 66.

Savers who reached SPA before the introduction of the new State Pension had been able to increase their additional State Pension through the payment of Class 3A voluntary NICs.

Women affected by State Pension delays won’t be given concessions, says Minister

Women who will be adversely affected by a hike in the State Pension age may not be offered any relief, the Secretary for Work and Pensions, Stephen Crabb, has suggested.

Many of those affected had hoped that they would be granted early access to their State Pension.

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However, Mr Crabb told MPs that a compromise to the issue would not be possible.

He stated: ‘I don’t see there is a do-able policy solution. It is just fiscally impossible.’

Many women born between April 1951 and 1960 have argued that they were unaware their State Pension age was due to be raised by up to six years.

Some have reported that they do not have sufficient funds to live on, and do not have enough time to make alternative financial arrangements.

Previously, Pensions Minister Ros Altmann had reported that she was looking into ways of dealing with the issue.

Members of the Women Against State Pension Inequality (WASPI) campaign group have said that they were disappointed with the latest decision, but remained hopeful that a solution could be reached.

From 2020, the State Pension age will be equalised for men and women, and will be set at 66. Previously, women could retire at the age of 60, whilst men could retire at 65.

New tax measures come into effect

A number of key changes to tax legislation have now come into effect, following the start of the new 2016/17 tax year.

The changes include reforms to the rules on national insurance, with employers no longer required to pay Class 1 secondary (employer) national insurance contributions (NICs) on earnings paid to qualifying apprentices under the age of 25. This comes as a result of the new ‘zero rate’ for ‘relevant’ apprentices on weekly earnings up to the Upper Secondary Threshold (UST), which is set at £827 in 2016/17.

The Employment Allowance for employer NICs has also increased from £2,000 to £3,000. However, companies where the director is the sole employee will no longer be able to claim this allowance.

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Commenting on the changes to national insurance, Dr Adam Marshall, British Chambers of Commerce (BCC) Acting Director General, stated: ‘Abolishing employer contributions will encourage more businesses to hire young apprentices, at a time when the UK is faced with a growing skills shortage’.

Moreover, the new ‘flat rate’, or ‘single tier’, State Pension also comes into effect today. This will affect those reaching State Pension age on or after 6 April 2016. The rate has been set at £155.65 per week – however, this may vary in accordance with an individual’s national insurance record.

Another change sees the pensions annual allowance reduced by £1 for every £2 for individuals with adjusted income over £150,000, down to a minimum of £10,000.

Other significant changes include the introduction of new rules on the taxation of dividends. The 10% dividend tax credit has been abolished from the 2016/17 tax year onwards, and a new Dividend Tax Allowance of £5,000 a year has been introduced. Dividend tax headline rates have also been altered: the new rates of tax on dividend income exceeding the allowance will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Additionally, the Government’s new National Living Wage (NLW) took effect from 1 April, applying to those workers aged 25 and over. The rate has been initially set at £7.20 an hour, and could potentially rise to over £9 an hour by 2020.

MPs warn ‘too few’ understand new State Pension

The Government has failed to make it clear that many individuals retiring on the new State Pension will not receive the maximum rate, MPs have suggested.

Data contained within a new Work and Pensions Committee report on the matter revealed that just 13% of savers reaching State Pension age will receive the full amount of £155.65 per week in the first year.

Some 32% of retirees are expected to receive more than this, while 55% will receive less, possibly due to ‘contracting out’ periods or gaps in contributions.

The Committee has argued that ‘failures of communication mean that too few people understand [the new State Pension]’.

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It is now calling for the Department for Work and Pensions (DWP) to write to those who will ultimately receive less. It has also urged for a telephone hotline to be set up to answer any questions that savers may have regarding the new State Pension.

Frank Field MP, chair of the Committee, said: ‘The new State Pension will ultimately be a welcome simplification of an over-complicated system.

‘The oversimplified message about the flat-rate amount has left many people unprepared and confused.’

However, the DWP has stated that it is committed to creating a simpler system that is easier to understand.

‘Millions stand to gain from the changes, including women and the self-employed, who so often have lost out in the past,’ said a DWP spokesperson.

From 6 April, eligible retirees will be able to claim the new State Pension if:

  • they are a man born on or after 6 April 1951
  • they are a woman born on or after 6 April 1953.

Those who reach State Pension age before 6 April 2016 will receive the current State Pension.