The latest Pension Bill has laid the ground for the fundamental changes to the way the basic state pension will work in future. We all knew what the Government had in mind but now it is official.
That is the way it works with pension legislation these days. We have seemingly endless periods when we are engaged in consultation. Everyone knows what is coming but the reality only hits once we see it on the legislative conveyor belt.
The changes to the state pension system are now on that conveyor belt,so it is just a matter of waiting for the Parliamentary process to run its course.
One of the issues that has been in the air for ages now, but is finally on the conveyor belt of reality, is the change to the number of years of National Insurance contributions people will be expected to make in order to qualify for the full basic state pension. The payment is £84.25 a week for single people these days but you only get the full rate if you have clocked up enough years of full NI contributions. Right now, the number of full years required by men and some women is anything up to 44 whereas for most women it is 39.
In fact, only 30 per cent of women manage to qualify for the full rate of basic pension. That is because the way an average working life pans out for most women does not really give them a fair shot at meeting the high number of target years needed to get the full pension. It has always been an unfair system.
The new Pensions Bill is going to do something about this at last. The intention is to reduce the number of contribution years to 30 for all men and women by 2010. That should mean that the number of women qualifying for the full basic state pension will go up from a miserable 30 per cent to a healthier 70 per cent. That is good, of course, but not as good as if the bill had fixed this inequality for 100 per cent of women immediately.
Until now, anyone who was not on target for getting the full basic state pension has had the opportunity to make up for lost years by making voluntary NI contributions. If you are a man, that has not been likely to bother you much, but many women have needed to understand what voluntary contributions are all about if they have wanted a chance at getting the full pension. The Government has done a good job recently of bringing this problem to the attention of women.
My wife and three daughters have all regularly been in receipt of letters from the Government extolling the virtues of having a full NI contribution record and putting the case for making voluntary contributions. It seems to me that many women will have been concerned to find out about their pension prospects this way and many will have made voluntary contributions to make up their shortfalls. The women in my family did not do that, even though they were worried about their pensions, because I knew what was in the air and told them not to worry.
But many women who have been happily paying voluntary contributions to boost their basic state pension are just finding out that they need not have bothered. They will get a full pension anyway under the new rules from 2010. It does not look like the Government will be refunding overpayments.
There are always going to be problems when our pension system is in a continuous state of flux. If that is the reality of our pension world, then it seems to me that the Government should look carefully at allowing people to undo past mistakes made in good faith when things were different. Anything else seems so unfair.
Steve Bee is head of pensions strategy at Scottish Life