Personal Pension  

Waspi exposes hornet’s nest of flat-rate state pension

    CPD
    Approx.40min

    Towards the end of 2015, as the introduction of the new flat-rate state pension loomed, a lot of attention was paid to “Waspi” (Women Against State Pension Inequality), a campaigning group that focused on the increases being made to women’s state pension age.

    Its argument was that the increase in women’s state pension age from 60 to 65 had been poorly communicated, to the extent that many women were unaware of, and so unprepared for, its effects. In response, the Work and Pensions Select Committee began an inquiry, “Understanding the new state pension”.

    This March, it published two reports: Communication of state pension age changes” and Communication of the new state pension.

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    The former document recommended that the government should communicate directly with people likely to be affected by changes to state pensions, giving them enough time to plan appropriately, using more engaging and innovative approaches than it had typically adopted in the past.

    The latter document also called for improved communication about state pension entitlements generally, including annual benefit statements and explanations of how those people who were in work prior to April 2016 and who will reach state pension after that date, could be affected by the changes.

    Unfortunately, the new system was live within two weeks of the report being published, so many people will have become eligible, for, or started receiving, benefits under the new regime, without understanding how they will be affected by differences between it and the old regime.

    This article explains how government changes to the state pension have altered certain expectations that people would have had under the old state pension regime.

    Cliff-edge effects

    The legislation implementing the new state pension includes some transitional protections for people who have paid (or are treated as having paid) National Insurance Contributions (NICs) prior to April 2016, but who reach state pension age after 5 April 2016.

    The general rule is that the amount accrued at that date will be protected: that is, no one’s state pension should be lower than the amount they might have been paid had they reached state pension age on 5 April 2016 (the ‘transitional rate’ of their state pension).

    However, the circumstances in which the state pension is paid (for example, in relation to contingent benefits) post 5 April, and the increases that apply, might differ compared with what would have been paid under the old regime. This has resulted in a number of ‘cliff-edge’ effects.

    Individuals with derived rights

    Some individuals with incomplete National Insurance (NI) histories would have expected to receive a state pension based on the NI history of their civil partner or spouse. The transitional rules provide some protection for women who paid the ‘married women’s’ rate of NI, but not for anyone else.

    In extremis, someone entirely reliant on their spouse’s record (that is, with no NI record prior to 6 April 2016), might have expected a pension of around £71.50 per week had they reached state pension age before 6 April; if their state pension age is on or after 6 April, they will now receive no state pension at all.