State pension reform from April 2010
David Simmons summarises the principal and consequential changes.
Major changes to the state retirement pension take affect from April 2010 including:
- a phased increase in the state pension age;
- a reduction in the national insurance (NI) requirements and new credits for parents and carers;
- the abolition of adult dependency increases;
- extended entitlement to a category B pension (based on a partner’s contributions) to married men and civil partners.
There are also significant consequential changes to other benefits, including changes to the age thresholds and qualifying ages for various benefits and elements of benefits – eg, corresponding changes to the minimum age for pension credit (PC) and the maximum age for working age benefits including jobseeker’s allowance (JSA) and employment and support allowance (ESA).
Those affected may need advice on retirement planning and maximising entitlement. There are also immediate ‘take-up’ issues relating to the abolition of adult dependency increases. The DWP has pledged to publicise the changes and write to people directly affected (eg, to all women affected by the increase in state pension age between 2010 and 2015) but many people will inevitably fall through the ‘information net’.
This article aims to act as a pointer to the main changes. The principal changes were provided for in the Pensions Acts of 1995, 2007 and 2008 and numerous sets of regulations.1 Further details are available at www.dwp.gov.uk/policy/pension-reform (including a briefing pack for advisers) and at www.direct.gov.uk/en/Pensionsandretirementplanning (including a state pension age calculator). There is also new and existing official guidance on the changes.2
Changes to the state pension age
From 6 April 2010 to 6 April 2020, there will be a phased increase in the state pension age for women from 60 to 65. This will affect women born between 6 April 1950 and 6 April 1955. Their pension age will rise by one month every two months between 2010 and 2020 (there are tables and calculators on the direct.gov.uk/statepension website). Women born after 6 April 1955 will have the same pension age as men.
The pension age for men and women will be 65 until April 2024, when there will be a further increase to 68 between 2024 and 2046. This will affect people born from 6 April 1959.
The age threshold and qualifying ages for other benefits and elements of benefits are changing in line with these increases. The most significant changes are listed below:
- the minimum age for eligibility for PC and winter fuel payments for men and women will rise incrementally from 60 to 65 between 2010 and 2020 in line with the increase in women’s state pension age;
- the maximum age for eligibility for income support (IS) for men and women will rise correspondingly from 60 to 65;
- the maximum age for eligibility JSA, ESA, incapacity benefit, bereavement benefits and reduced earnings allowance for women will rise in line with the increase in their state pension age between 2010 and 2020 (men will continue to be eligible up to the age of 65);
- the qualifying ages for housing and council tax benefit (HB/CTB) for men and women of working age/PC age will change in line with PC;
- premiums, housing costs, earnings disregards and capital rules for IS (and the social fund), JSA and HB which have age conditions will be correspondingly amended – eg, the disability and enhanced disability premiums will remain payable to claimants under the state pension age. Note, however, that the qualifying age for exemption from prescription and eye test charges, concessionary travel and warm front grants will continue to be 60;
- similar changes will take affect between 2024 and 2048 to reflect the rise in state pension age to 68 (this will also change the qualifying ages for disability living allowance, attendance allowance and savings credit);
- credited NI contributions for men aged 60-65 will be gradually phased out in line with the increase in women’s state pension age (see below).
The changes will make it more important to advise people on an individual basis about the age at which they will qualify or cease qualifying for various benefits. They also mean that claimants will be subject to the ‘work-focused’ conditionality of working age benefits for longer.
National insurance conditions
People who reach pension age on or after 6 April 2010 will only need to satisfy a single NI contribution condition to qualify for a full category A or B state retirement pension – paid or credited contributions for 30 qualifying years (as opposed to the current 44 years for men and 39 years for women). A person with less than 30 qualifying years will be entitled to 1/30th of the full pension for each qualifying year. A new right to buy an additional six years’ Class 3 contributions for people with 20 qualifying years came into effect from 6 April 2009 (clients should always get a pension forecast and advice before deciding whether it is worth buying additional contributions).
Home responsibilities protection (HRP) for parents and carers is being replaced by a new system of weekly credits for people who reach pension age on or after 6 April 2010 (up to 22 years HRP prior to the change will be converted into credited contributions). Credits will be automatically awarded to:
- people getting child benefit for a child under 12 (and, in certain circumstances, their partners);
- approved foster parents;
- carers who could qualify for IS, or who are caring for a person getting attendance allowance, the middle or higher rate care component of disability living allowance, or certified as needing care.
People getting child benefit or IS will receive their credits automatically, but others will have to apply for them.
Automatic NI contributions for men aged 60 – 65 will be phase out in line with the increase in women’s state pension age. From 6 April 2010, they will only be available to men for the tax years in which they reach the pension age of a woman of the same age.
Claimants and advisers need to be aware of the new NI conditions and credits when considering financial issues relating to retirement.
Abolition of adult dependency additions
From 6 April 2010, it will no longer be possible to claim an increase of state retirement pension for an adult dependent (a spouse or other person looking after the claimant’s child). The rules also preclude claiming an increase for a civil partner. Anyone already entitled to an increase on 5 April 2010 can keep it up to 6 April 2020, as long as they continue to satisfy the conditions of entitlement. This will include those who were entitled to but not receiving an increase because of the ‘overlapping benefit’ rules, or stopped being paid an increase because of the ‘earnings rules’.
Anyone who may be entitled to an increase should, therefore, consider whether they should claim an increase before 6 April. This will particularly apply to people who have deferred, or are thinking of deferring, claiming their state pension as the loss of an increase will affect ‘better-off’ considerations.
Entitlement to a Category B
Category B pensions are currently payable to certain married women, widows, widowers and surviving civil partners with a deficient NI record.
- From 6 April 2010, a married woman will no longer have to wait until her husband has claimed a Category A pension before she can claim a Category B pension.
- Married men and female civil partners will be eligible to claim a Category B pension from 6 May 2010.
- Male civil partners will be eligible to claim a Category B pension from 6 April 2015.
- Anyone who becomes a surviving civil partner or widower after reaching state pension age on or after 6 April 2010 can claim a Category B pension even if their partner had not reached state pension age when they died.
The DWP will write to most eligible people but some people will fall through the net and need advice to take up their potential entitlement.
Other changes include:
- changes to the state second pension to widen eligibility and move towards the payment of a flat-rate weekly top-up to the basic pension;
- uprating of the basic pension in line with earnings (this will not happen until 2012 at the earliest).
Please be aware that welfare rights law and guidance change frequently. Therefore older Bulletin articles may be out of date. Use keywords or the search function to find more recent material on this topic.
- 1. The most significant include the Social Security (Equalisation of State Pension Age) Regulations 2009 (SI 2009 No.1488); the Social Security (State Pension and National Insurance Credits) Regulations 2009 (SI 2009 No.2206); the Social Security (Contributions Credits for Parents and Carers) Regulations 2010 (SI 2010 No.19)
- 2. Memo DMG 40/09; Memo DMG 31/09; HB/CTB Circular A16/2009; DMG Chapter 75