WASPI -Why some women born in the 50’s have been stung...twice!

You may have heard me on BBC Wiltshire yesterday morning talking about the Petition that is being put forward by Women Against State Pension Inequality (WASPI) for the government to help ease the financial uncertainty for women born in the 1950’s who say they have received little or no notice that the state pension age for women is being delayed by up to 6 years.

Firstly, a bit of history - back in 1908 the Government of the day set up the ‘old age pension’ aimed to help those over age 70 earning less than £2,000 a year (in today’s money).  It was generous for it’s time and was means tested.

In 1925 it morphed into becoming contribution based, i.e. you had to pay into to it to receive it, and the start point was age 65 of the youngest spouse.

Under those rules Michael Douglas would be 90 years old before he could get his old age pension (are he and Catherine Zeta Jones still married?).  This was deemed unfair, so just after the outbreak of WW2 women’s old age pension age was dropped to 60.  And there it stayed for 55 years!

In 1995 we started the process of reducing some of the discrimination between men and women.  Many ex-communist countries have opted not to reduce the discrimination as they believe women are disadvantaged by usually being the one to bring up the children.  

In 2007 the Labour government decided to increase state pension age again eventually up to age 68, just 2 years off what it was originally set at in 1908!  But it’s still not means tested...not yet anyway!

The decision was then taken that, in 2010, state pension age would start to increase and by 2020 would be complete. In 2011 this date was brought forward to 2018. 

Of course people are living longer too, so delaying state pension for everyone will save the government a lot of money.

Apparently the government wrote to those concerned, and put adverts in the press, however when pushed for evidence of this under Freedom of Information, they refused as the cost to do so would be more than £600.  No one remembers getting a letter or seeing any adverts. In 1995, only 1% of the population, 600,000 people, had internet access - remember 26K modems and the funny noises they made when they connected?

If the DWP gets mail returned, it doesn’t always try to track you down, and they freely admit that a sizeable proportion of their mail doesn’t even get opened. Can you imagine expecting to be claiming your state pension in a year or two, only to find that it’s been delayed by up to a further 6 years!  Somewhere between 300,000 - 500,000 women are affected.

Some women were delayed by the first change to 65, and then by the second change as well.  Many didn’t know about the first change and so the double whammy will have sent them into shock.

Men’s state pension age was delayed too.  But they were given over 7 year’s notice of a 1 year delay.  

Ex pensions minister, Baroness Ros Altmann, said that at least 10 year’s notice should be required to give people adequate time to make alternative arrangements.  It took them 14 years to write to those affected by this debacle, but they say there is no wiggle room to put it right.

To compound the problem, at best, many women affected have small private or company pensions as companies used to exclude women and part timers from their company schemes.  They were highly reliant on getting their state pension, and it’s been thrust beyond their grasp, twice.  They were also much more reliant on their husbands staying in work for longer than expected.

Previous Pensions Minister Steve Webb said he acted too hard and too fast.  Despite this, Baroness Altmann ruled out any help on 26 Sept 2015 even though when she was Director General of Saga in 2011 she called for a slower timetable and better information.

There was a debate, which the government refused to take part in, on 7 January 2016 and it had unanimous support from those attending.  But, as a backbench motion it had no force to make the government act and DWP & Justice Minister Shailesh Vara said there would be no change.

The second debate on 1st February 2016 was also rejected by stonewall Shailesh Vara, although she said that the women could of course claim Job Seeker’s Allowance instead.  This is worth much, much less than state pension and comes with a raft of terms and conditions designed to reduce how much you can have.  

You can understand why women affected are very unhappy!

Here’s hoping that something more positive comes from this latest petition. We know there is going to need to be a compromise but it’s likely that one party will be compromising much more than the other.

If you want to know your state pension age, click here.

Remember that, at best, basic state pension is often little more than £20 a day, so you absolutely need to provide for yourself - if you’d like to talk pensions then get in touch.

State Pension Top-up; A Cheap Annuity?

Millions of pensioners and those approaching retirement will now have the chance to raise their state pension income by up to £25 a week with the launch of a new scheme.

From 12 October 2015 to 5 April 2017, you are able to apply to make a ‘Class 3A voluntary contribution’ to top up your State Pension by up to £25 per week.

Under the deal, you can choose to top up your weekly basic state pension by between £1 and £25 a week. 

How much you need to contribute will depend on:

* How much extra pension you want to get each week

* How old you are when you make the contribution

If you are 65 now and you want to buy an additional £1 a week for life it will cost you £890. If you want to buy the full £25 (or £1,300 a year) it will cost you £22,250.

Cheap Annuity?

The reaction to this has been generally good, with a string of experts pointing out that this is effectively a very cheap annuity. 

For example, if you had wanted an annuity that provided you with £1,300 per year, on the open market you would pay around £35,000, rather a lot more than the £22,500 that the Government are asking for.

Effectively, you’re getting an annuity rate of 6%, far better than the 3% available on the open market. 

On top of that, factor in that your spouse can inherit 50% of your State Pension on your death and it looks like a bargain, doesn't it?

Double Taxation

In many ways the scheme - known as Class 3A - looks generous, but it may not necessarily be the best way to boost your pension. 

The state pension top up is likely to be paid with money that has already been taxed, and will have tax applied a second time when taking the income from your topped up state pension. 

This is in contrast to an annuity purchased via your pension where the contributions are exempt from tax, the growth of the funds are exempt and tax is only applied when taken as an income.

All of this will reduce the net amount of income that you receive.

Payback Period 

So how long would you have to live for you to get your money back?

Lets say that you hand over the £22,250 for the extra £25 a week. 

* If you are likely to fall below the personal allowance tax threshold of £10,600 and will not pay tax on the income, it will take 17 years for the state to return to you the money that was yours anyway (£22,250/£1,300). You’ll need to live to 82 to break even.

* For those who will be basic rate taxpayers, you can expect 21 years before you break even at age 86. 

Given that the average life expectancy in the UK is 81.5 years, it may not seem like such a good deal after all. 

Other Options 

To receive the full state pension, you are required to have 30 qualifying years of national insurance contributions. 

For those who don’t, luckily you can pay to plug the gaps. Each year costs you £733.20 and will get you an extra £200 a year. 

That’s a payback of less than four years for non-taxpayers and just over four years for 20 per cent payers. That’s got to be better than 17 and 21 years with the State Pension top-up.

Alternatively, you could consider deferring your pension. Each year that you defer your pension, you will receive a 10.4% increase in your annual payment. The payback on this would equal 9.6 years, not quite as good as 4 years but certainly a lot better than 17 years! 

As always, the devil is in the detail. Despite the headline cheap annuity, it pays to consider the opportunity cost.