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A risk-free 26 per cent

Created:

29 July 2010

Updated:

30 July 2010

Written by:

Nick Louth

Millions of women have partial national insurance (NI) records, and many aren't aware that it will hit their state pension. Women are much more likely than men to have a broken employment record, part-time working, periods of childcare or other factors that interfere in building up a full contribution history. Only a third of retiring women in the UK qualify for a full state pension.

Contribution years can normally be bought back up to six years after they were due, and in special cases longer than that. Even for those who have already retired, and get part of a state pension, it isn't necessarily too late.

At its simplest, deciding to pay back a single year's NI contribution of £626.60 can add £3.14 a week to a state pension payment for life. That may not sound much, but it is £163.28 a year (hence the 26 per cent return) and can add up to a tidy sum over the rest of a lifetime. A 60-year-old non-smoking woman can expect (on average) to live to 84. If buying back the normal maximum of six years for £3,759.60, that produces an £18.84 uplift each week in state pension or £979.68 a year, and typically £23,512 over the remainder of life.

On top of that, there is an annual inflation uprating, and under current coalition government policies, a return to the link to earnings too.

How pension entitlement is built

Anyone retiring after April 2010 needs 30 years-worth of NI contributions for a full pension, and gets 1/30 of a pension for each full contribution year, whether male or female.

■ Contributions aren't only paid for employment (or self-employment) but are credited for periods on most benefits.

■ Between 1978 and 2010 those who looked after children, and were the recipient of Family Allowance (later Child Benefit, now Child Tax Credit) will have been entitled to Home Responsibilities Protection (HRP). Each year of HRP removed a year from the total of years required to get a full pension, to a minimum of 20. So if you spent five years looking after your kids, you will only need 25 years of other NI contributions or credits to get a full pension.

■ HRP is now replaced by a new benefit for parents and carers, but it is still possible to claim HRP retrospectively if you haven't been credited.

■ Those who retired before April this year have different rules. Men needed 44 contribution years for a full pension, and women 39. It is still possible to buy back contributions as far back as 2004-2005.

Three safety nets

■ Most women qualify for 60 per cent of a state pension by a link to the contributions record of a husband or partner once he retires, even if they are now divorced or widowed.

However, with women currently retiring at 60 and men not until 65, women with younger partners can wait a long time to get this boost. Women born after 5 April 1950 retire at 65 or later.

■ Pension Credit. Women on low income will have their income topped up at retirement by Pension Credit even if they do not qualify for a state pension.

■ Age. At 80, everyone is entitled to 60 per cent of a state pension, irrespective of their contributions.

How to claim

If you have any doubts about your contributions record, contact the Future Pension Centre on 0845 300 0168. They will send you a forecast. Some women may be surprised by how low their forecast is. Here are some common reasons.

■ Low pay or part-time work in the past which was not high enough to qualify for the minimum NI contribution threshold;

■ Cash-in-hand employment;

■ Extensive work/travelling abroad, and no voluntary contributions made, or living abroad with a UK national employed by an overseas company where no contributions were made;

■ Marriage to an non-EU national who paid no NI contributions;

■ Until 1977, it was possible to elect to pay married women's reduced rate NI for employees (class I) or self-employed (class II contributions) and many did, unaware that it counts neither towards state pension or HRP.

Check the forecasts against your own records of years spent at work, on benefits or caring. For part-time work, you may need to get the old earnings thresholds for relevant years sent to you to check whether you earned enough. Your local Citizens Advice Bureau can help deal with the complexities. If there is a shortfall, and you can afford to buy back years, it is important to act quickly.

Nick Louth is a specialist adviser for the Citizens Advice Bureau