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Another very British pension scandal

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Some older married women have once again suffered from underpaid state pensions. Andy Keates explains how the lump sum pension arrears will be taxed.

31st Aug 2021
Tax writer
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Pensions history

Prior to 2016, the state pension system comprised a basic pension plus an optional top-up (SERPS/Second State Pension). From 6 April 2016 that was replaced by a simpler flat rate state pension for new retirees, with a significant reduction in the number of years of NIC history needed to fund a 100% entitlement.

However, the old system – which remained in force for those who had already retired – contained a ticking time bomb.

Under the old system, many married women were unable to build up the lengthy employment history then required to fund a full pension in their own right; many others had paid a reduced “married woman’s” rate of NIC. This led to many women retiring on quite minimal state pensions. 

To compensate for this inability to self-fund a full individual pension, they had the ability to claim 60% of their husband’s pension entitlement from the time he reached retirement age. Similar provisions applied to widows and divorcées.

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Replies (16)

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By Hugo Fair
31st Aug 2021 14:17

"Under the old system, many married women were unable to build up the lengthy employment history then required to fund a full pension in their own right; many others had paid a reduced “married woman’s” rate of NIC. This led to many women retiring on quite minimal state pensions.
To compensate for this inability to self-fund a full individual pension, they had the ability to claim 60% of their husband’s pension entitlement from the time he reached retirement age. Similar provisions applied to widows and divorcées."

Can you provide a URL for the relevant legislation - particularly regarding that final sentence?

Leaving aside whether or not the treatment of married women was inequitable, it seems extremely generous that previous marriages could entitle a host of widows and or divorcées all to benefit from having once been married to a single male (presumably at different points in time)?

Thanks (1)
Replying to Hugo Fair:
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By jeremybarker
01st Sep 2021 22:36

I believe it's all in the Social Security Contributions and Benefits Act 1992 - https://www.legislation.gov.uk/ukpga/1992/4/pdfs/ukpga_19920004_310320_e...

Sections 43-55 of this Act deal with the pre-2016 retirement pension and the 60% pension is called a "Category B retirement pension". Section 48BAA deals with a divorcee or former civil partner and sections 48B and 51 deal with widows, widowers and surviving civil partners.

Thanks (1)
Replying to jeremybarker:
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By Hugo Fair
01st Sep 2021 23:58

Thanks ... although I can't say that the full 348 pages is an enthralling read (or even particularly well laid out)!
But your pointers to the relevant sections are most welcome - and would have been a practical addition to the main article.
There are a lot of 'exclusions', but that still leaves plenty of people who are entitled (but may not realise it) to some additional state pension!

Thanks (1)
Replying to Hugo Fair:
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By Andy Keates
02nd Sep 2021 10:51

Sorry, only just seen your comment.

jeremybarker has kindly linked you to the legislation which, as you say, is quite a big chunk. It's also written in oldspeak, so takes a fair bit of untangling.

For those who like more user-friendly guides, this link

https://researchbriefings.files.parliament.uk/documents/CBP-7981/CBP-798...

is as user-friendly as it gets (it's a HoC briefing designed to enable MPs to understand this problem if it gets brought to them by constituents). Hope this helps - it contains footnotes linking through to the more detailed legislation.

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By Paul Crowley
31st Aug 2021 15:06

The tax treatment really is incredibly generous.
I may be wrong, but this was not secret and the uplift for inadequate contributions is also very generous to the ladies.
All that generosity is of course a cost to the current working population, so well done us.

Thanks (4)
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By B.R.
01st Sep 2021 10:08

My sister suffered from this incredible injustice as a stay at home mother. In 2004 her annual state pension was £14.04 pa! She died in 2016 leaving very little to her grandchildren. What recourse have her children and grandchildren to seek compensation for this shabby treatment?

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Replying to B.R.:
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By Hugo Fair
01st Sep 2021 11:00

Whilst sorry to hear of your loss, I don't see a connection between underpayment of state pension to your sister and her having left little to her grandchildren. Are you suggesting that leaving money to grandchildren is a standard expectation or even right?
Also, how do you see being a "stay at home mother" as a direct cause of that awful low pension? My wife worked until our first child, followed by the state 'paying' her contributions for another 22 years (whilst she 'stayed at home' as a mother) and then went back to work part-time - all of which resulted in a full pension.
Have I missed something in the scenario you portrayed?

Thanks (3)
Replying to Hugo Fair:
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By B.R.
01st Sep 2021 11:27

I'm assuming that a weekly pension of £0.27p must relate to her being a stay at home mum. My comments are simply precursors to my question as to whether her children/grandchildren have any rights to historical underpayments.

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Replying to B.R.:
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By Hugo Fair
01st Sep 2021 11:39

Well that's a legal question (on which I'm not qualified to provide a definitive answer) ... but I suspect the answer will be along the lines of "Only if so defined in law - whether via statute if DWP proceed that way, or via case-law if someone fights on that point (probably all the way to the Appeals court)".

The current regs make no provision of which I'm aware for payment of a deceased person's state pension (let alone any historical underpayments) to anyone else - other than in some cases indirectly to the spouse.

And, I'm not being deliberately mean or hard-hearted, but you really need to find out the facts in your sister's case if you want to take this further (via CAB or any other channel) - as assumptions (like the cause being due to being a stay at home mum) won't help any case you may have.

Thanks (1)
Julie Stacey
By Pingsquitch
01st Sep 2021 10:32

Does anyone understand the difference between the "old" and the "new" state pension amounts payable? I will be 71 in November. Despite paying in excess of the required NI and also paying many years Self-Employment contributions I actually get less than my friend who is 2 years younger and has not paid as much into the system as myself (she is a partner in a building firm so most of her working life has only paid the Self-Employment contribution). Is there anyway I can contest this?

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Replying to Pingsquitch:
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By Paul Crowley
01st Sep 2021 11:00

Your Friend may well have both graduated pension and SERPS
Unless she never had employment and spent her whole life self employed.

Were your contributions married womens contributions?
Why not compare the annual notice of increase received each year?

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Replying to Paul Crowley:
Julie Stacey
By Pingsquitch
03rd Sep 2021 00:09

Thanks for your reply, I paid the full NI throughout my working life (I believe then it did not start until the age 18?) right through until I was 60½ when I received my State Pension, with the exceptions of 5 years out when I had my children (1975-1980) and 12 months unemployment in 1989 prior to starting my own business in 1990, I then became employed again in 1995 but continued with my self-employment so was paying both contributions, this continued until 2011

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By AndrewV12
01st Sep 2021 10:33

Extract above
Regrettably, it appears that this did not always take place owing to what the DWP described as “administrative errors”.

Administrative errors, lovely and vague, Blame it on the Computer, never the DWP.

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By AndrewV12
01st Sep 2021 10:35

See above

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By dmmarler
01st Sep 2021 10:45

It should be noted that the DHSS (now DWP) at those times actively encouraged/expected women to pay the reduced NI rate once they married. They did this as the women would then not be able to claim unemployment and other expensive benefits, including pensions in their own right. For a long period. women's pensions were taxed with their husband's income anyway. So much has changed over the years and everything should be viewed in the context of the time.

Thanks (1)
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By dmmarler
04th Sep 2021 04:04

Pingsquitch raised a valid query regarding the relative amounts paid to individuals under the old pension regime.

Her situation is unusual as she says she was paying full NI plus self-employed NI in later years. From this I take it she should have claimed and received Unemployment Benefit in 1989 as she would have had the relevant contribution record to claim it AND it would give her NI credits during the period of unemployment. She was then self-employed for five years, then had a mixture of employment and self-employment. It would be very easy for the DWP to mismatch her records under the circumstances, as they expect people to be either employed or self-employed. It was possible to write to DWP (Newcastle) and ask for a statement from them as to how their records were compiled, so she can check they have all her years, etc., but I suspect that she could be out of time as the pension is now in payment.

There also used to be a provision whereby, if you had more than one employment/self employment, once the basic pension NI contributions had been made you could reclaim the overpayment / duplicate payment. This redressed the balance somewhat. Claiming the repayment could be time limited. If she no longer holds detailed records it could also be difficult to substantiate.

Like many women she had employment and self-employment income (or several employments), and the bureaucrats who designed the system did not think of that. If all the incomes were combined into one she would probably paid less in contributions and have received a SERPS/second pension as well as the basic pension. As it is, I believe she is probably only receiving basic pension plus a small SERPS/second pension (if at all).

The old system was designed for people with one job in full time employment, not for people dipping in and out of employment, mixing employment and self employment, having many employments, etc. The NI contributions system is still based on these and other outmoded concepts, and it would be better if it were incorporated into general taxation.

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