Good news for pensions

The Pensions Act 2007, which became law in August, has reduced the number of qualifying years required to receive a full state pension to 30, for both men and women. This will apply only to those who reach their state pension age on or after 6 April 2010.

Qualifying years are those where full National Insurance Contributions (NICs) are made, usually through employment. Those who have taken time out of work to act as a carer or to bring up children under 16 may also receive Home Responsibilities Protection (HRP) and the number of qualifying years can be reduced to 20-22 years.

Years may be credited, at no cost, between the ages of 16 and 19 and between the age of 60 and the date of receipt of pension, whether in employment or not. NICs must be made for all paid employment up to the receipt of a state pension, irrespective of the number of years already accrued.

The reduction in qualifying years will mean that most members who retire before the age of 60 will not need to pay voluntary Class 3 NICs in order to increase their entitlement, provided they reach state pension age after 5 April 2010. If someone has unnecessarily paid such contributions since 25 May 2006, s/he may claim a refund.

Those who have a shortfall of qualifying years owing to having worked abroad, or having been in full-time education after 19, or taking a career break for other reasons, should now find that they will have fewer years, if any, to make up in order to get a full pension.

As an added bonus, for those who retire before 60, the Government Actuary has changed the factors which are used to reduce a pension and lump sum.

As of 1 October 2007, the factors have become marginally more favourable.

The change is to facilitate the exchange of pension for additional tax-free lump sum and because the previous factors had become relatively too harsh compared with general financial trends.

The Calculator on the Teachers' Pension website has been amended www.teacherspensions.co.uk/resources/arb_calculator_npa60.htm