On 6 April 2010, new rules on qualifying for the full state pension will kick in.
Currently, women need to have worked 39 years to clock up enough National Insurance contributions to be entitled to the full state pension and men for 44 years. However, a change in the rules on 6 April this year will see both dropped to 30 years.
On the face of it, the Government’s attempt to make the full state pension more accessible, particularly to women who may have taken time out of their careers to raise a family or care for an elderly relative, looks positive. However, it will have connotations for the 110,000 women who are set to turn 60 before 6 April having worked between 30 and 39 years: connotations in the region of £20,000 which could they could lose out on if they live to the average life expectancy age of 81; just because they were born on the wrong date.
Women born just one day apart facing significant financial differences
Women turning 60 before April 6 this year will receive only 75% of the state pension if they have less then 39 years of NI contributions under their belts, unless they have paid extra to top them up. However, those turning 60 on or after April 6 will only need to have worked 30 years to receive the full entitlement, which means women born just one day apart could face significant financial differences in the long term.
The changes may also affect men, although it is less likely they would have taken the same career breaks as women so most would have met the necessary years of contributions.
Changes should have been phased in
Whilst the changes are welcomed, LibDem Work and Pensions spokesperson Steve Webb suggested they should have been phased in. He said, ‘The changes are entirely welcome and long overdue but they create a ‘cliff-edge’ for those who reach pension age immediately beforehand. Many could lose out on £10,000 over ten years simply for being born a few days too early. Big changes like this should be phased in.’
Top up options for those living on 75% pensions
By 2025, it is estimated that 90% of all women will qualify for the full pension. But what of those reaching retirement age now and losing out because of a date of birth lottery? The State Pension barely meets the financial needs of the retired as it is so for those who did not pay to top up their NI contributions and face life on just 75% of the State Pension, pension top up options will need to be considered.
One of these options for homeowners is Equity Release through a SHIP (Safe Home Income Plan) Lifetime Mortgage or Home Reversion Plan. Geoff Charles of Equity Release Specialists Bower, says: ‘With these types of mortgages or plans, cash can be released from the equity in a home without fear of losing that home or owing more than its value.’
‘Drawdown plans’ within Lifetime Mortgages and Home Reversion Plans can be used to top up income and savings as needed. Geoff Charles says: ‘Lifetime Mortgages have the added flexibility of monthly repayments or for those for whom reducing monthly expenditure is important, no monthly repayments.’
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, please ask for a personalised illustration.
Bower is an FCA regulated independent financial advice company that offers specialist advice on equity release throughout the south of England. For more information e-mail [email protected] or call [tel]. Bower offers a no obligation initial consultation to homeowners considering Equity Release.