Monday, 9 December 2013

PENSION WRONGS


Janet is 57; her husband John is 62. They have both retired and have been living off a company pension which John had accrued before he was made redundant a few months ago. They have been married for almost 40 years but have recently separated and have agreed to divide everything equally between them including their pension income.

“The pension produces a total income of £30,000 now so we’ll each get £15,000 in the future.” Wrong, if the company pension is to be subject to a pension sharing order so as to give Janet an equal income in her own right and with immediate effect, the total income produced is likely to be less than the sum presently being paid. If John’s pension scheme does not allow Janet membership and instead, as is common, insists that she purchases a pension fund in the market place, she will generally need more than half of the value of the pension fund to do this as she is significantly younger than John and her pension will therefore be paid for longer.


“Well at least the state pension is really simple,” Janet says; “We both qualify for full basic state pensions (currently £110 per week) and they’ll both come into payment at the same time.” Wrong, state pension ages were changed for women both in 2010 and again in 2011; Janet won’t now be getting her state pension until she is 66 in 2022, although John will still receive his at 65 in 2016.


“Maybe that won’t matter too much,” thinks Janet as she’s heard that she can rely on her husband’s national insurance contribution record to claim a better pension in retirement. Wrong, that would only have the effect of increasing entitlement up to the basic level of state pension which Janet already has in her own right and as neither has earned any Additional State Pension there is nothing there to share under the current legislation either. John was “contracted out” meaning that instead of earning Additional State Pension, he paid a lower rate of National Insurance and earned a larger pension through his employer. Janet will take her share of that by sharing in John’s company scheme.


“We can solve that by John paying me half the state pension he receives, until my own pension comes into payment and then at least I’ll have caught up and we’ll both have the basic rate of state pension.” Wrong, assuming the current Pensions Bill becomes law then from April 2016 a new single tier pension (for illustrative purposes quoted as £144 per week albeit based on 2012/13 figures) will be paid and the Additional State Pension will be abolished.


John, however, will not qualify for the full payment of £144. Although  he is 65 after the proposed implementation date, he will not receive the full single tier because he has been contracted out throughout his working life and the only sum which it is guaranteed he will be paid is akin to the current basic state pension of £110 per week.


Janet, however, will receive the full higher rate, or £34 per week (based on the illustrative figure) more than John, as she has a National Insurance record of over 35 years and was never contracted out.


“Then John will rely on my National Insurance Record under the new scheme to claim a full single tier pension for himself,” comments Janet. Wrong, the new pension scheme is non-transferable and everyone will earn their own inalienable pension benefits under it.


Any wonder, we all find change difficult?

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