The Quickie

A bite-sized look at this week's news…

Extra pensions-but who benefits?

Posted by allie1985 on October 28, 2008

Nearly half a million people are being given the chance to buy back 6 years of National Insurance contributions to increase their state pensions.

90% of which are women.

However the government minister in charge of the project believes just 110,000 people will apply.

She also confirmed that the price of contributions will be increased.

 What this means

At the moment only 35% of women receive the full state pension.

Under current law to receive the full amount women need to have made 39 years of NI contributions, for men it is 44.

The majority of women fail to meet the required 39 years due to time off for raising children, and looking after elderly and sick relatives.

Under the new scheme the number of years of contributions a woman needs to make will be cut from 39 to 30.

They will also have the option to buy back another six years worth of contributions.

Although this only applies to people who have made over 20 years of payments.

 Who this affects

This change in law applies to both men and women who reach he state pension age between April 6 of this year and April 5 2015.

This deal does not help those who retired before this period.

 In Simple terms

According to the Daily Mail,

“The change in the qualifying period essentially means that a woman retiring on April 6, 2010, with 30 years’ contributions would get the full basic pension of £87.30 a week but prior to today’s announcement one retiring just a day earlier would get only £67.23 a week”

 The costs

It currently costs £420 per year to top up NI credits.

The cost is set to rise, but it is not yet known by how much. This is in order that the cost to the government remains “neutral”.

Rosie Winterton, the Minister for Pensions said “We have to draw the line somewhere and balance the need for individuals with the need not to draw enormously on the public purse”

 Is it worth it?

According to Baroness Patricia Hollis

“It represents a very good buy indeed”

“If you took out a loan at 7% at the point of retirement for those six years and you paid it back over five years, even while you were paying it back you would make a modest profit of £2 or £4 a week and after five year you would be absolutely in hand”

 DWP link

Background piece

Alexandra Murphy

(alexandra.murphy@my.westminster.ac.uk)

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