Personal PensionSep 14 2016

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

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      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.

      Women born after 5 April 1953 will have a double whammy, since the increase in their state pension age means that, not only is their own entitlement to state pension delayed, but they lose any entitlement to a pension based on their spouse or civil partner’s NI history.

      Inherited rights

      Although there are some transitional protections related to inherited rights, their effect materially reduces the amount of the ‘inherited’ state pension that eligible people might have expected.

      For example, if a couple both reach state pension age before 6 April 2016, the current rules provide for 100 per cent of the deceased partner’s basic state pension (referred to as the Category B pension) to be inherited, and between 50 and 100 per cent of the additional pension (the earnings-related part of the state pension, which no longer exists under the new regime), depending on the age of the deceased spouse.

      If a couple reach state pension age just after 5 April 2016, inheritance rights only apply at the rate of 50 per cent of any excess of the deceased spouse or civil partner’s transitional rate of pension over the full rate of the single-tier pension – so the survivor might receive nothing.

      Table 1 explains the potential loss in value in inherited rights for a couple reaching state pension age after 2016, with some pre-2016 state pension ‘entitlement’.

      Two examples are illustrated, both assuming either 50 per cent or 100 per cent of the additional pension (AP) is inherited (that is, the two extremes of the possible range).

      Table 1

      Full BSP and £1000 additional pensionFull BSP and £2000 additional pension
      AP inherited50%100%50%100%
      Pre-2016 value£38,900£41,800£41,800£47,700
      Post-2016 value£0£0£400£400
      Loss£38,900£41,800£41,400£47,300

      Divorce or dissolution of a civil partnership

      Currently, on divorce or dissolution of a civil partnership, the additional pension part of an individual’s state pension rights can be included in assessing the ‘assets’ to be shared as part of a divorce or dissolution settlement (‘pension sharing’).

      Post-2016, pension sharing will only to apply to any transitional pension rights in excess of the full single-tier pension.

      Fewer than 10 years’ National Insurance Contributions

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