Avoiding pension limbo

Ending up with no state pension at all – do the new rules mean this nightmare scenario is now possible? Well, it might be… but don’t panic just yet.

The past year has seen sweeping reforms to the pension system, and these have been largely well received. People are retiring with more choice than ever, and more freedom to use their money as they see fit. However the new system may – in theory at least – leave some people with a problem.

In order to qualify for a state pension, it is necessary to have paid National Insurance (NI) contributions for at least ten years. However, the currently retiring generation includes a number of individuals (overwhelmingly women) who may have never been in paid work and so never paid any NI. If you were in this position under the old system, then you would still be entitled to some benefits under your spouse’s state pension. However, this will change as of April 2016. Everyone will need at least ten years of NI contributions to qualify for any state pension at all, and 35 years to receive the full amount (around £151 per week).

This is not much comfort to those who have lacked an income of their own all their married life. But the chances of receiving nothing are still pretty remote, thanks to various safeguards.

All is not lost

A temporary measure has been put in place to reduce the impact of the change. People now excluded from the state pension through insufficient NI contributions will still be entitled to receive 60 per cent of a qualifying spouse’s pension. However, to qualify for this you still need to have paid at least one year of lower-rate Married Women’s National Insurance at some time in the preceding 35 years. If you still have over a year before you reach state pension age, it is worth trying to arrange this if you can.

But if you don’t have a year (or the money) to spare, you may qualify anyway. NI credits are allocated to people in certain circumstances where they are not able to work – such as through illness, disability, or simply stopping work to take care of children. For instance, if you claimed child benefit for a child under 16 (or a child under 12, post-2010), then you will have been credited automatically with a year of NI for every year that you did so.

Furthermore, if your joint weekly income is less than £226.50 after your working spouse’s retirement, then you may also be able to claim pension credit to raise your income to this level. The Pension Credit Line (0800 99 1234) can give you more details.

With all these interim measures and safeguards in place, it seems highly unlikely that anyone will be left entirely without state support in later life. Whether this level of support will be enough to live on is another question entirely.

You can obtain a state pension forecast at gov.uk/state-pension-statement or by calling 0845 3000 168. To see whether your current pension arrangements are good enough for you, and how they might be improved, you can book a free pension check with a regulated adviser and get £50 off any follow-up advice. Find out more here.