Women urged to claim their missing state pension rights: it's "buried treasure with their name on it"

09/10/2007

An MP is calling on around half a million women in their sixties to check whether they could qualify for a little-publicised Government scheme to fill gaps in their pension record and get a significant backdated boost to their state pension. 

Steve Webb, who launched his campaign in the Mature Times earlier his year and received hundreds of replies from readers proving that the shortfalls in payments are widespread, has described the payments as "buried treasure with their name on it".

A recent parliamentary answer to the Lib Dem MP has shown that over half a million women in their sixties are narrowly missing out on any basic state pension in their own right, many by just one or two years of NICs.   What many are not aware of is that under a special Government scheme many could fill gaps in their record from 1996/97 to 2001/02 at little or no cost to themselves.   The main women affected are:
    a     currently in their sixties AND
    b     currently drawing less than a full basic state pension AND
    c     have a gap in their NIC record for at least one year from 96/97 to 01/02 when they were below pension age and could have paid NICs if they had wished;

During the years 1996/7- 2001/2 inclusive the Inland Revenue failed to send out deficiency notices to those who had not paid enough National Insurance for a full qualifying year towards their pension. Normally, those who receive these letters can fill in any gaps in their contribution record by paying voluntary or ‘Class 3’ contributions.

To make up for the Government’s failure to issue such notices for that period, a scheme was put in place which allows women in certain circumstances to ‘buy back’ missing years at the Class 3 rate that prevailed in those years, to have any improvement in pension backdated to when they were sixty, and – in some cases - to offset the cost of the Class 3 NICs against any lump sum of backdated pension to which they become entitled.

The scheme may be of particular benefit to women who fell just short of getting any basic state pension at all on their own contributions.

In order to qualify for any basic state pension it is necessary to have paid National Insurance contributions for 25% of your working life - normally 39 years for a woman.   But many women are just short of the 25% threshold and therefore get no basic state pension in their own right at all.

In principle, some of these women will have had a letter from the Inland Revenue in 2004/05 giving more information about filling gaps in their NI record, but the numbers responding have been low.   For example, 470,000 people who were already over pension age in 2004/05 had such letters but less than 70,000 has responded by making additional payments.   Others who had not reached pension age in 2004/05 but who are pensioners now may not have acted on their initial letter and have probably now forgotten all about it.

The cost of filling one of these gaps is between £300 and £400 per missing year depending on the year in question.

To give an example, a woman now aged 65 who is one year short of qualifying for any basic state pension could buy back a missing year for around £300. If this qualifies her for a 25% pension (worth over £1000 pa) this would be backdated for the five years to when she was 60.  She would therefore be entitled to a lump sum of over £5000.   The Government would ‘net off’ the cost of the missing contributions and simply pay a cheque for the difference.

This scheme may even apply to women who are now drawing a pension based on their husband’s contributions, provided that there was a period before their husband was 65 when they themselves were over state pension age.   This is because any boost to the underlying pension entitlement based on a woman’s own contributions is backdated to when she was 60.  So although her current pension may not be affected, she may get a lump sum for the years before her husband was 65.

Steve Webb said: "Very few people understand how state pensions are calculated and I believe that there may be large numbers of women in their sixties who simply do not know that they are missing out.   Where I have publicised the scheme in my own constituency I have already heard from dozens of women who could benefit and I am keen that everyone who might be eligible makes enquiries.   Ultimately what is needed is for the Government to use its own records and identify such women systematically".

There are, however, some caveats to this scheme. The main exceptions are:
 
a) women whose husband is much older, so that he was already 65 when she turned 60;  in most cases she would do better simply to claim a pension based on his contributions rather than try to improve her own contribution record;
 
b) women who were still paying National Insurance at the 'married woman's rate' right up to their retirement;  such women (a dwindling band by the end of the 1990s) are basically outside the National Insurance system.   Women who were liable for self-employed NICs for the period are also excluded.
 
c) couples dependent on means-tested benefits, who may find that any improvement in their pension would be largely clawed back through reduced means-tested benefits.

With regard to the letters sent out in 2004/05 (catch-up deficiency notices), the DWP says in its defence that it trialled the letters on pensioners to see if they understood them - which they apparently mostly did - and also got the plain English campaign to look at them.  

But the low response rate suggests that many still did not understand them or were worried that they would have to find cash upfront which they could not afford.

If you have any queries or related experiences you would like us to pass on to Steve Webb email editorial@maturetimes.co.uk.