Wednesday, 3 June 2020

SMART METERS - DO THEY THINK WE'RE DUMB?

UPDATED 3 June 2020

The latest figures indicate the Government is going to miss its revised target to fit 85% of home in Britain with a smart meter by the end of 2024.

This new target was introduced in September 2019 when it became clear that the original target of fitting or at least offering one to every home in Britain by the the end of 2020 was, literally, unachievable. But now the new one looks out of reach too.

By the first quarter of 2020 just over 19 million smart meters had been installed in homes, split about 57:43 between electricity and gas. The number of installations has fallen from its peak of 1.3 million in the last quarter of 2017 to just 984,685 in the first quarter of 2020. A year ago I said that at the current rate of fitting it would be be mid to late 2026 before the target was reached. That remains the case.

To install the remaining 25 million smart meters by the target date would require 1.3 million fitted every quarter. In 2019 the average was just over a million a quarter. The rate is falling - and will have been practically shut down by coronavirus - so even at a million it would take 25 quarters which takes us to the first few months of 2026.

The trade body energy UK warned the Government in November that the target was unreachable and the best it could hope for was just over two thirds of homes fitted by the end of 2024.

Meters fitted
Of the 19.2 million smart meters which had been fitted by the end of March 2020 only 4.3 million were SMETS2, leaving 14.9 million of the early version called SMETS1. Despite their name they are not smart enough to cope when the customer changes supplier and will normally go dumb or, to use the official phrase, 'operate in traditional mode'. The latest figures show that 3.7 million of these SMETS1 meters have gone dumb and BEIS has told me that "the vast majority is likely to be a result" of customers switching supplier.

So in addition to the 25 million traditional meters that need replacing another 15 million SMETS1 meters need upgrading.

Since 15 March 2019 all meters being fitted should be SMETS2. However, we know that some suppliers have still been fitting SMETS1 meters because SMETS2 are in short supply and they still have SMETS1 meters in their stores. The latest report for Quarter 1 2020 says "Energy suppliers are now installing second generation smart meters (SMETS2) as the default choice in most cases." My emphasis. It clearly implies some SMETS1 meters are still being installed.

There are plans to upgrade SMETS1 meters to operate with any supplier. They will still not be SMETS2 meters but the workaround will at least mean they can support switching supplier. This process is known as enrolment into the DCC network (described below) and it was due to begin in July 2019. The target date to upgrade all SMETS1 meters is still the end of 2020. It is not clear to me yet what progress has been made but we do know that 3.7m SMETS1 meters are still operating in dumb mode.

Voluntary
Customers are free to choose whether or not to have a smart meter fitted. But the large companies are more and more trying to make it seem inevitable. Some are even booking appointments without agreement others are cold-calling and sending texts to customers. This hyperactivity was because if they missed the original 31 December 2020 target they could be fined. EDF was fined £350,000 for missing its 'milestone target' for fitting meters. These milestone targets are secret and Ofgem refuses to reveal them despite an FOI request. Ofgem also confirmed that any SMETS1 meters fitted after 15 March 2019 will not count towards those milestone targets.

Most major suppliers now have at least one tariff where agreeing to a smart meter is part of the terms and conditions. Regulator Ofgem says such terms are within its rules as long as "communications are transparent and accurate, including around any smart meter only tariffs they are offering."

Not all homes can have smart meters. Rural areas, tall blocks of flats, buildings with thick walls, and meters in odd locations can all prevent installation. And the target by the end of 2024 is only to fit them to 85% of homes - leaving between four and five million homes without one.

What smart meters do
Smart meters are not in fact very clever. They simply report back to the supplier how much electricity and gas the customer uses each day and, with the customer's permission, every half hour. More frequent reporting may be available in future.

The meter also feeds some information about current use to what is called an 'In Home Display' or IHD. If you have both electricity and gas there will be one IHD which covers both electricity and gas. It will normally be mains-powered and fixed in position but there will be an option for a separate portable battery powered unit. The IHD can show how much fuel is currently being used and can display the cost in £.p. Some of them will have a traffic light system - glowing green when consumption is low through amber to red when it is high. They can also do calculations of past and future use. Some reports suggest that if the IHD is switched off for any reason it is difficult or impossible to get it back online and recording usage accurately.

Costs
The costs of the smart meter programme are certain, though it is inevitable now that they will increase above their current estimates. The latest cost/benefit analysis was published in September 2019. It is still priced in 2011 pounds and to get to a current 2020 cost these figures should be multiplied by 1.17. It estimates that manufacturing and installing 53 million meters, communication devices, and IHDs in 30 million premises will cost £7.5 billion. There is also a new communications infrastructure network called DCC which will cost £2.9bn. That was due to be completed late in 2015 but was in fact not switched on until November 2016 and was still being tested In 2018. It now seems to be working with the 4.3 million SMETS2 meters fitted by the end of March 2020. The cost/benefit analysis puts the total costs of the programme over 22 years at £13.5bn. That is around £15.8 billion in today's pounds.

That cost is more than £500 per household and is paid through higher electricity and gas bills. Those payments have begun. In 2017 all major suppliers and some smaller ones have put up the cost of electricity by 10% to 15% and each of them blames that rise in part on smart meters. That process continued in 2018.

Savings
Estimates of the savings are more speculative.

 * Customers will save money because they will use the information from the IHD to cut their energy consumption. That is the theory and the saving from that is put at £6.2bn over 22 years based on a 3% cut in electricity use and 2.2% in gas use (and just 0.5% for prepayment gas customers). The savings figure assumes that just one in three customers will achieve these savings.

Achieving those savings requires active engagement by customers. But many will not be engaged and will end up paying more. A report by the old Department for Energy and Climate Change on some pilot smart meter installations found that initially 96% used their IHD but about four out of ten disconnected them during the research. None were able to identify any clear savings due to the IHD. The Public Accounts Committee estimated in 2014 that customers would save on average about £26 a year. A survey by a price comparison site in July 2018 (on a small and perhaps not representative sample) found that less than half (49%) of its sample of 678 people with a smart meter had reduced energy usage. And as standing charges grow - in 2019 they accounted for 13.5% of the typical bill - the scope for reducing bills by cutting energy use decreases.

Customers will also gain, if they choose to, by faster switching from one supplier to another. The process can take weeks now but a 24 hour service is promised. They will also benefit from suppliers sending an accurate monthly bill of energy used rather than sending out estimated bills. Though they will then lose the advantage of smoothing their bills over the year. 

In the 2019 Cost benefit analysis there is a new saving allocated to customers. It is £1.4 billion from what it called 'time savings' which it says is a monetary value on "reduced time consumers spend interacting with the energy system". That includes reading the meter, sending the results to the supplier, calling the firm with complaints or questions and, in the case of prepayment customers, travelling to a shop to get their key charged up. It comes to 32 minutes per year for credit meter customers and around three hours per year for prepayment customers. Halve those times for customers who only have electricity.

* Energy suppliers will save an estimated £8.1 billion. The biggest chunk - £2.3bn - will be from ending meter reading and other home visits. Reduced customer enquiries and complaints will save £1.2bn. Another £1bn will be saved by managing pre-payment customers better and there is a big saving of £1.2bn from reducing the cost of customers switching supplier. A further £1.9bn is saved by managing debt better and reducing theft.

* Networks and the generators will save £1.7bn between them from smoothing the peaks and troughs of demand and generating less power.

* Finally, carbon related benefits and air quality improvements will add £2bn to bring total savings to £19.5bn, of which £9.8 billion is saved by the energy industry directly.

These figures from the 2019 cost/benefit analysis are in 2011 pounds. Actual costs in 2020 pounds will be 17% higher. Even in constant terms the total cost of £13.5 billion is £2.5 billion more than the 2016 assessment. The cost is being paid by energy customers through their bills.

Who gains?
Less than a third of the savings will be made directly by consumers, though if you add in the value of the time saved that comes to 39%. Half the savings will be made by the industry. The hope is, of course, that suppliers, generators, and transmitters of electricity and gas will pass some of those savings on. They may. But some of their savings - on debt management and prepayment meters for example - will come at a direct cost to the customers affected though they may be passed on to others.

So while the customers will pay for the £13.5 billion cost of the smart meter programme through their bills, the savings of £6.2 billion will only be gained by those who adjust their behaviour and and the £9.8 billion saved by the industry will only be felt by customers if the industry passes on its own savings to customers in lower prices. It is not at all clear that the £2 billion rather speculative carbon related and air quality savings will ever reach consumers' pockets.

The energy industry has a very poor record in passing on savings. In 2014 they took many months to pass any of the gains from the fall in the wholesale price of gas and none reduced electricity prices even though much of that is generated by burning gas.

Extra costs.
The impact assessment does not take account of two significant extra costs.

First, bills will no longer be estimated as they will be based on actual usage over a month. That is promoted by the Government as good news for consumers. But it will be expensive for gas and electricity suppliers. For many years they have encouraged customers to agree to pay estimated bills monthly by direct debit rather than quarterly based on meter readings. The result is that the firms have kept hundreds of millions of pounds on their books belonging to customers. The value of that is shown by the fact that customers who pay a more accurate quarterly bill can be charged 7% extra or more more than monthly direct debit customers. If they no longer make that saving then prices will inevitably rise. Some customers may prefer to keep estimated bills. They are at least constant and that can help with budgeting.

This money the suppliers routinely hang onto is separate from the £400m that Ofgem found they had wrongly kept when customers switched to another supplier. In February 2014 it ordered firms to refund this money. That event does not bode well for hopes that the industry would voluntarily return to customers the savings it makes from smart meters.

Second, the DCC has incurred expenses planning and eventually implementing the upgrade of SMETS1 meters. The National Audit office estimated in November 2018 that will add another half a billion pounds to the cost.

Time of use
The report also makes no assessment of the costs or savings to be made from what are called Time of Use tariffs. Once the smart meter network is rolled out suppliers will start making customers manage the load, especially in electricity supply. In other words when demand is high the price goes up. When demand is low the price comes down. And with half hour reporting - and it may be more frequent in future - time of use tariffs could be very specific.

For example, energy could be more expensive between 7am and 9am when most people are getting up, putting on the kettle, and making breakfast. Or between 5pm and 8pm when evening meals are being cooked. The result would be that poorer families could not afford to eat dinner at dinner time.

Ultimately the cost of power could rise during the adverts in TV soaps or the interval in football matches when millions put the kettle on make a cup of tea.

Time of use tariffs mean that the customer is being drafted in to manage the national power load. By pricing people out of energy use at peak times the peaks and troughs of usage - so irksome to the engineers managing the grid - are smoothed out.

Time of use tariffs are particularly being touted for charging electric vehicles overnight for those drivers who have a drive or garage at home where they can charge them up. The current specification for home vehicle chargers specifies that suppliers will be able to decide the time of day that the energy is fed to them.

Debt and disconnection
Smart meters will also enable energy suppliers to manage debt and disconnection remotely. Customers can be switched from credit payment to prepayment by the supplier without changing the meter. It also means that if someone has not paid their bill then the supplier will be able to disconnect them remotely. There are currently safeguards about who can be disconnected and when. But once the conditions are met the process of doing so will be much simpler. In fact though there were only 17 disconnections in 2017.

Organisation
The delivery of this programme is in the hands of the six large and dozens of smaller energy suppliers. They each fit the meters for their own customers. Which could mean dozens of different engineers visiting the same street or block of flats to do the same job in neighbouring homes.

The central Data & Communication Company (DCC) is run by Capita. It will be responsible for collecting the data sent back by smart meters and forwarding it to the right energy supplier, the networks and energy services companies. Others may also get access to it. In 2014 the Information Commissioner expressed concerns about the security and use of this data. There is currently no provision to let customers know specifically who has access to it.

The data network will be run by two companies - Arqiva will cover northern England and Scotland using a long-range radio network and Telefonica UK will cover the rest of England and Wales using standard cellular telephone technology with what it calls 'mesh technology' to fill the gaps in the cellular network. Unlike individual customers the devices will be able to roam between suppliers to find the strongest signal. The target is to cover 99.25% of dwellings - which if achieved will leave 225,000 premises unconnected. However, remote dwellings, tall buildings, and multi-occupied premises are problems that have not been solved. Some in the industry have said that 30% of homes cannot be integrated into the DCC grid. The Department for Business, Energy, and Industrial Strategy has not denied that figure.

Meanwhile Smart Energy GB spent £87m over 2018 and 2019 to persuade us all that the smart meter programme is a good thing. What it calls building consumer awareness and understanding of smart meters and encouraging consumer engagement. It included advertising such as the Gas and Leccy characters and a Smarter Britain bus tour with daytime TV housing gurus Kirstie Allsopp and Phil Spencer - who admitted he didn't have a smart meter before he was paid to promote them.

In November 2018 the Advertising Standards Authority told SmartEnergyGB to stop claiming smart meters were free as we were all paying for them - about £400 per household - through higher bills. And in March 2019 it ruled that a claim smart meters saved people money was false and should be withdrawn. They only save money if we change our habits to use less.

Criticisms
On 25 November 2018 the National Audit Office published a report on smart meters and warned


"The facts are that the programme is late, the costs are escalating, and in 2017 the cost of installing smart meters was 50% higher than the Department assumed. 7.1 million extra SMETS1 meters have been rolled out because the Department wanted to speed up the programme. The Department knows that a large proportion of SMETS1 meters currently lose smart functionality after a switch in electricity supplier and there is real doubt about whether SMETS1 will ever provide the same functionality as SMETS2. The full functionality of the system is also dependent on the development of technology that is not yet developed.
The facts summarised above, and many more, are not fatal to the viability and value for money of the programme. However, there are serious issues that need to be addressed if Smart Meters is to progress successfully and deliver value for money."

On 15 October 2018 a revised House of Commons Library briefing set out the difficult task of meeting the 31 December 2020 deadline and has a lot of useful background information.

In July 2018 the British Infrastructure Group of MPs and Peers published their report Not So Smart which said that the saving per household would probably be only £11 a year and that the 2020 deadline was not achievable - it recommended a two year extension. It also raised concerns about whether the savings by the energy suppliers and the networks would be passed on to consumers. It was concerned that customers would not know what was happening to their data.

On 7 March 2015 the Energy and Climate Change Select Committee expressed concerns about delays and unresolved challenges in the smart meter programme. "Without significant and immediate changes to the present policy, the programme runs the risk of falling far short of expectations. At worst it could prove to be a costly failure."

In December 2014 the Ontario auditor general Bonnie Lysyk said that the state's smart meter programme had cost twice its estimate and made few if any savings for customers or suppliers and failed to reduce energy consumption.

3 June 2020
vs 4.01
19777

Sunday, 24 May 2020

TARGET 175 - BOOST YOUR NEW STATE PENSION

UPDATED for the 2020/21 tax year


More than a million people who reach state pension age in the years from 6 April 2016 will not get the full amount of the new ‘flat-rate’ state pension - currently £175.20 from 6 April 2020.

But many of them could boost their pension towards or up to the full flat rate amount.

This guide is for men born 6 April 1952 or later and women born 6 July 1953 or later who paid into a good pension at work or, in some cases, into a personal pension.

There are other groups who can boost their state pension. Separate links for them are listed at the end of this guide.

NEW STATE PENSION
The new state pension was supposed to be simple. A flat-rate amount for everyone who had at least 35 years of National Insurance contributions. This year 2020/21 that amount is £175.20 a week (£9110.40 a year) and is taxable. However, there are around one and a half million people who will reach pension age in the years before 2027 who will get less than that even if they have 35 years or more National Insurance contributions.

That is because an amount is deducted from the pension for every year they paid into a good pension at work. I call it a contracted out deduction because they were ‘contracted out’ of part of the state pension called SERPS or State Second Pension (S2P). They paid lower National Insurance contributions and instead of that additional state pension they get a pension from their job which was supposed to replace it. The Government prefers to call it 'Contracted Out Pension Equivalent' or COPE. It is that COPE amount that is deducted from your new state pension.

This group includes most people who worked in the public sector, such as

  • nurses, doctors, and others in the NHS
  • teachers in schools and universities
  • police officers and fire brigade staff
  • civil servants
  • local government workers
  • armed forces
  • Post Office workers
It also includes many people who worked for one of the privatised industries such as British Airways, British Rail, British Steel, and Royal Mail.

Another large group affected are people who worked for a private sector employer who paid into a good scheme at work that promised them a pension related to their salary. They used to be called ‘final salary’ schemes and nowadays are called Defined Benefit or DB schemes. In the past many large firms ran such schemes. There are still nearly 6000 of them and if you paid into one at any time from 1978 your new state pension will be reduced.

Also included are some people who paid into a personal pension and who were persuaded to contract out of part of the state scheme – at the time it was normally called ‘contracting out of SERPS’.

For all these people their new state pension will be reduced for the years they paid into a contracted out pension scheme. That deduction applies even if they have paid the 35 years which is needed to get a full pension – the deduction is made after the full pension is worked out. It can also apply even if they were contracted out for a short period and paid in 35 years or more when they were not contracted out. These deductions can be very large but normally can never leave you with less than £134.25 a week of the old or 'basic' state pension.

Please do not ask me why that is fair! It may not be fair, but it is the law. The good news is that you can reduce that deduction and, depending on your age, you may be able to get your pension up to the full flat-rate £175.20.

THE DEDUCTION
If your new state pension has an amount deducted from it because you spent some time paying into a good pension scheme at work then you can reduce that deduction or even wipe it out. This guide is of most use to people who are currently aged at least 57. It will help even if you already have 35 years National Insurance contributions or more.

If your new state pension is reduced because you paid into a good pension scheme at work then every year of National Insurance contributions from 2016/17 to the year before the tax year you reach state pension age will mean that deduction is less.

If you work and earn more than £120 a week you will get contributions credited or paid to your account (you start actually paying for them when you earn above £183 a week; under that they are credited). If you get child benefit for a child who is less than 12 then you will also get a credit for each week. If you get jobseeker’s allowance, employment and support allowance, or working tax credit then you will get a credit for each week you get that benefit. You can also get credits if you are a carer in some circumstances. Check here for more details of who can get credits. Some are given automatically, others have to be claimed.

Men can get credits for years between women’s state pension age and 65. They get a credit for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and any subsequent tax year before the tax year they reach 65. So these man credits are only available to men born before 6 October 1953. See footnote.

If you are self-employed then you must pay what are called Class 2 National Insurance contributions if your profits are £6475 or more. They are called Class 2 and are £3.05 a week (£158.60 a year). Self-employed people can also pay these contributions voluntarily even if their profits are below £6475 - but only for years in which the were genuinely self-employed. The Government planned to phase out Class 2 contributions but that has been deferred. 

If you will not pay National Insurance contributions at work or as self-employed or get credits for them you can pay voluntary contributions, called ‘Class 3’. They will cost you £15.30 a week (£795.60 for a year). For each extra year of contributions your pension will be boosted by £5.01 a week (£260.30 a year) so the payback is rapid – just over three years for non-taxpayers; almost four if you pay basic rate tax; just over five for higher rate taxpayers, and almost six for top rate 45% taxpayers. Contributions for earlier years are less: 2019/20 - £780, 2018/19 - £772, 2017/18 - £740, and 2016/17 - £733.20 making them even better value for money.

The new state pension up to £175.20 a week comes under the ‘triple lock’ promise and will rise each April by prices, earnings, or 2.5% whichever is the highest, at least until April 2022. Recent economic conditions may see the end of that triple lock from April 2023 or even earlier. 

If you have paid some contributions at work or as self-employed during the tax year but you are short of a full year you can pay individual weeks through Class 3 (or Class 2) to make your record up to a full year.

You can only pay Class 3 contributions for the years before the tax year in which you reach state pension age. That limits the number of years you can pay to boost your pension. The table show which years you can pay Class 3 contributions for to set against the contracted out deduction and the maximum boost that may give to your pension. Your pension cannot be boosted to more than £175.20 a week and it cannot be less than £134.25 so the maximum boost is £40.95.

BOOSTING A NEW STATE PENSION THAT IS SUBJECT TO A CONTRACTED OUT PENSION EQUIVALENT (COPE) DEDUCTION
Reach State Pension Age in
Men born
Women born
Years you can pay
Maximum pension boost (2019/20 rates)
2016/17
6 April 1951
5 April 1952
6 April 1953
5 July 1953
0
£0.00
2017/18
6 April 1952
5 April 1953
6 July 1953
5 Oct 1953
1
£5.01
2018/19
6 April 1953
5 Jan 1954
6 Oct 1953
5 Jan 1954
2
£10.02

Men and women born


2019/20
from 6 January 1954
to 5 July 1954
3
£15.03
2020/21
from 6 July 1954
to 5 April 1955
4
£20.04
2021/22
from 6 April 1955
to 5 April 1956
5
£25.05
2022/23
from 6 April 1956
to 5 April 1957
6
     £30.06
2023/24
from 6 April 1957
to 5 April 1958
7
     £35.07
2024/25
from 6 April 1958
to 5 April 1959
8
     £40.08
2025/26
and later
from 6 April 1959
to 5 April 1960
and later
9
     £40.95
 (max)


NEXT STEPS
There is no hurry to do anything. You can pay voluntary Class 3 contributions in the tax year they are due or up to six years after that. You cannot pay them in advance. The price may rise as time passes so it will be cheaper to pay them as soon as you can.

If you will reach state pension age in 2019/20 you may want to act soon to see if you can boost your pension by paying National Insurance contributions for 2016/17, 2017/18, 2018/19, and 2019/20. Otherwise it is probably best to wait.

You can phone the DWP’s Future Pension Centre on 0800 731 0175 and ask for help. Ask them what your ‘starting amount’ is and ask if there is a deduction for being contracted out. If your starting amount is less than £175.20 and there is a contracted out deduction then you may be able to boost it using the information in this guide. 'Starting amount' is explained in the notes below. If you have a deduction for a pension which you cannot trace use the Government's free Pension Tracing Service.

Many people have contacted the DWP and been told they cannot boost their pension because they have 35 years of contributions. That is incorrect. Some officials seem to be confusing this scheme with one to fill gaps in your contribution record. There is a separate guide about that – see Filling Gaps below. Others have been told that they need more than 35 years to get a full pension. That can be true in the circumstances in this blogpost, but it is a confusing way to put it. 

You may get more sense from the free and excellent Pensions AdvisoryService or call on 0800 011 3797. Beware of similar sounding commercial organisations.

You can check your starting amount at this Government website. You will have to go through security procedures which can be a pain. Make sure it includes your 2015/16 contributions. This website may let you see how you can boost your pension by paying extra National Insurance contributions. It may be operational now or that may still be pending. 

NOTES
1. All the rates in this guide are correct in 2020/21. 

2. If your income is low then you may get extra money from pension credit or help with your council tax or rent (rent or rates in Northern Ireland). If you buy Class 3 contributions to boost your pension those benefits will be reduced but it will almost always still be worthwhile.

3. Your ‘starting amount’ is the calculation of how much state pension you have built up at 6 April 2016 under the old and the new rules. Your starting amount is the one that is bigger. It will take account of National Insurance contributions paid up to 2015/16 and will also make a deduction for years you have been ‘contracted out’ of part of the state pension system called SERPS. If it shows you have fewer than 35 years of National Insurance contributions then you may be able to pay more to boost that number towards 35. See ‘other groups’ guides link below.

4. SERPS, the State Earnings Related Pension Scheme, was an earnings-related supplement to the basic state pension. People paid into it as part of their National Insurance contributions from April 1978 to April 2016. From April 2002 it was changed and renamed State Second Pension (S2P). It was SERPS and S2P – sometimes called ‘additional pension’ – which people ‘contracted out’ of if they paid into a good pension at work or in some cases into a personal pension which they chose to ‘contract out’. They paid lower National Insurance contributions. The pension they paid into was supposed to replace the SERPS or S2P but it does not always do so in full.

5. Tax years run from 6 April one year to 5 April the next. So 2020/21 runs from 6 April 2020 to 5 April 2021.

6. If you have an old pension you cannot trace, use the Government's free Pension Tracing Service.

7. Contacted Out Pension Equivalent is the amount deducted from your new state pension to take account of the time you were contracted out of SERPS/S2P. In theory the amount deducted should be paid to you by the pension scheme you paid into as part of being contracted out. But that will not always happen especially if you were contracted out into a personal pension. This government guide to contracting out sort of explains it.

8. Man credits. These man credits - called auto-credits - are only awarded for whole tax years, not individual weeks. Men born 6 April 1952 to 5 April 1953 can get a year of contributions credited for 2016/17. They may also get earlier years credit but they do not help with reducing their contracted out deduction. Men born 6 April 1953 to 5 October 1953 can get a year credited for 2017/18.

The credit is given for the tax year in which they reach women's state pension age (unless they also reach 65 in that tax year) and for any subsequent tax year before the tax year they reach 65.

BOOST YOUR PENSION GUIDES FOR OTHER GROUPS
Men born 6 April 1951 or later and women born 6 April 1953 or later.
·         Filling gaps in your National Insurance record – new state pension 

Men born before 6 April 1951 and women born before 6 April 1953
·        Filling gaps in your National Insurance record – old state pension 
·        
There is also a comprehensive guide to what you can do to top up your state pension available as a download from the mutual insurance company Royal London written by former Pensions Minister Steve Webb. It is well worth a couple of hours study.

Version: 4.00
24 May 2020
Previously: Target 155, Target 164, Target 169
70359

Friday, 22 May 2020

MARRIED WOMEN PENSIONERS SHORT-CHANGED

SUMMARY
Tens of thousands of married women in their seventies or older are being paid too little state pension. Some could be owed £4000 a year. 

You are almost certainly entitled to extra state pension i
  • your husband was born before 17 March 1943
AND
  • you get less than £80.45 a week state pension
Some slightly younger women - aged at lest 67 - and some women with younger husbands may also be due extra money.

The women affected get the old state pension, not the new one which began for those who reached state pension age from 6 April 2016.

These married women are normally entitled to a top up to bring their basic pension up £80.45 a week. However, many did not claim it or it was not paid due to an error by the Department for Work and Pensions. See 'Married women' below.

Some divorced or widowed women may also be entitled to a bigger state pension. See 'Widowed or divorced' below.

Anyone aged 80 or more - men and women, married or not - should normally get a state pension of at least £80.45 a week. See 'over 80' below

DETAILS
Married women 
Nowadays most married women have their own state pension paid for with their own National Insurance contributions. But millions of older women do not. Women born before April 1950 needed 39 years of contributions to get a full pension. If they had fewer than that their pension was reduced and women with fewer than 10 years contributions got no state pension of their own. 

Many married women did not earn enough at work to pay National Insurance contributions or, if they did, they chose to pay the reduced married woman's contribution - known in the past as the  'married woman's stamp'. It did not count towards a state pension. The result is that millions of older married women are only entitled to a reduced state pension of their own, or none at all.

To help them there is a special rule that when a husband reaches state pension age his wife can get a pension based on his National Insurance Contributions. That married woman's pension is 60% of the basic pension – and currently comes to £80.45 a week. 

If a married woman has a basic state pension of less than £80.45 a week or none at all it is topped up to that amount when her husband reaches state pension age. That applies even if he – but not she – gets the new state pension (men born from 6 April 1951 get the new state pension). 

Nowadays that top up to £80.45 a week should be paid automatically when her husband reaches state pension age. However, before 17 March 2008 a married woman who already had a pension when her husband reached pension age had to apply for the upgrade. 

Research done by former Pensions Minister Steve Webb indicates that there could be more than 100,000 women whose husbands were born before 17 March 1943 who get a state pension of less than £80.45 a week but who did not apply for the top-up. Those women were born before 17 March 1948 and are now aged 72 or more.

They can apply for the higher pension now. It will top up their state pension to £80.45 a week and the top up will be backdated for a year. A woman with no state pension will get £4183 plus £80.45 a week for life. 

There may also be some younger women born between 17 March 1948 and 5 April 1953 and some women with younger husbands - born 17 March 1943 or later - whose pension should have been upgraded automatically but was not. Steve Webb's figures show that error did happen in many cases. They can apply for this pension now and, because the mistake was made by the Department for Work and Pensions, it will be backdated to the date it should have been paid. That can be up to 12 years. 

Any married woman who has a basic state pension of less than £80.45 a week should claim the extra. She will probably be successful.

To see if you qualify use this calculator provided by Steve Webb at Lane Clark & Peacock. 

You can claim your extra pension either online at the Pension Service or call free 0800 169 0154.

Widowed or divorced
A widow can use her late husband's record to get a state pension if that would be more than was due on hers. In most cases her reduced pension can be boosted to 100% of the basic state pension - currently £134.25 a week. She can also inherit some or all of his SERPS.

A woman who is divorced can use her ex-husband's National Insurance record instead of her own up to the date of the divorce. If she has had more than one husband then it is only the record of the most recent one she can use to boost her state pension. This should be done when she claims her state pension. But it may not have been so it is worth checking.

Women who are widowed or divorced and get less than the full 100% basic state pension of £134.25 should ask the DWP to check they are getting all they are entitled to. If it was worked out wrongly in the past it could be backdated to the date of that error. 

Call the Pension Service free on 0800 169 0154.

Over 80
Once you reach 80 you are entitled to a state pension of £80.45 a week if your existing state pension is less than that or you do not get one at all. To qualify you must be 
  • aged 80 or more 
  • live in the UK or the EU when you reached 80 or when you claim
  • have lived in England, Scotland, or Wales for at least ten years out of the last twenty.
It is not means-tested and does not depend on your National Insurance record. The full rules are here. 

If you are over 80 but get less state pension than £80.45 or none at all then claim it now. It can be backdated up to a year.   

You can claim your extra pension either online at the Pension Service or call free 0800 169 0154.

Exceptions

Not every married woman with an old state pension of less than £80.45 will be due extra pension. Some husbands themselves had less than a full state pension - they needed 44 years of National Insurance contributions then to get a full one. If he gets less than the full basic state pension – currently £134.25 a week - then his wife will also get a lower married woman's pension. However, it is his basic state pension that counts (called Category A), so ignore all extras like additional pension - what we used to call SERPS - graduated retirement benefit, or extra pension for not claiming it at 65.

If he was originally given less than a full basic state pension then his wife’s pension on his contributions will be 60% of that and will be less than £80.45 a week. But she may still be getting too little and should claim.

People living outside the UK in a country where the state pension is frozen - it does not rise with inflation - may well be getting less than £80.45 a week and not be entitled to any top up. 


23 May 2020
version 1.00



Sunday, 5 April 2020

WHY DOES THE TAX YEAR REALLY BEGIN ON 6 APRIL?


The tax year in the UK starts on 6 April and runs through to the following 5 April. To find out why we need to go back  a    l  o  n  g    way.

Romans
Just over 2000 years ago, in AD 14, the first Roman Emperor Augustus died. Among his many legacies was the calendar we use today.

It was initially devised by his predecessor Julius Caesar. By the time Gaius Julius came to power the Roman calendar was in a mess. One reason was that it was a secret religious document controlled by the priest class and not subject to outside scrutiny. Their job was to make the calendar work and determine the dates of religious holidays, festivals, and the days when business could and could not be conducted. But they had done it badly for many years and Caesar inherited a calendar that was out of step with the seasons by a quarter of a year.

He called in an Egyptian astronomer Sosigenes and decided to put things right. He added 90 days to the year 46 BC to bring the calendar into line with the seasons so that the spring equinox was on 25 March and the year began on 1 January as it was supposed to do. Caesar decreed that in future the calendar would follow the solar year of 365.25 days divided into twelve months of 30 or 31 days apart from the 28 day February to which would be added the leap day every fourth year.

Two years later, on the Ides of March 44 BC (15 March), Julius Caesar was assassinated on the steps of the Senate. As was their wont, the priests who were left in charge of the calendar mistook the instructions and added the extra day every third year (they counted inclusively 1-2-3-4 so to them the third year was called the fourth).

This error went unnoticed for more than thirty years and was finally corrected by Julius's successor, Augustus. By then the seventh month had been named after Julius and on Augustus's death in AD 14 the eighth month was named for him.

Apart from that one change the amended Julian calendar with the same months of the same lengths and a leap year every fourth year has run continuously since the year 8 BC.

Church
But one small correction was needed. The Julian Calendar assumes the year is 365.25 days long - hence the extra leap day every four years. In fact the year is very slightly shorter than that. So over many centuries the calendar began to get more and more out of step with the seasons. Towards the end of the 16th century it was almost two weeks ahead of the Sun. Pope Gregory XIII decided to correct it. He took ten days out of the calendar - which fixed the spring equinox around 20/21 of March - and decreed that in future there would be no Leap Year in century years unless they were also divisible by 400. Taking out three days every 400 years would almost precisely align the new Gregorian calendar with the time it takes the Earth to orbit the Sun.

The change was made in October 1582 and much of Europe soon followed. But the Protestant UK refused to obey a Papal decree and no change was made in the UK or in what were then its Colonies and Dominions. So our calendar got further out of step with the seasons and of course our dates were different from much of Europe.

Britain
It took nearly 200 years before the British Government decided to make the necessary changes. The Calendar (New Style) Act 1750 decreed that Wednesday 2 September 1752 would be followed by Thursday 14 September thus removing eleven days and bringing the calendar back where it should be. Note that the weekdays were not changed - the weeks we use have proceeded unchanged since the eight day Roman week was changed by the adoption of Christianity in 325 AD.  

The Act also set the start of the new year on 1 January. Many people had reverted to starting it on the old Roman equinox day of 25 March. You can still find eighteenth century books published early in the year with two dates such as '1724/25'. They were published in what we would call 1725 but before the new year on 25 March. 

But there was a problem. Tax was due over a whole year. So if there were 11 fewer days in 1752 tax would be due 11 days early and over a shorter period. At the time the tax year began on that Roman spring equinox day, 25 March. It was called Lady Day and was one of four quarter days when rent and other payments fell due. The quarter days are
  • March 25 (Lady Day)
  • June 24 (Midsummer Day)
  • September 29 (Michaelmas Day)
  • December 25 (Christmas Day)

In the 1750s the tax year was not a concept as it is today. We are now taxed on our income which arises during the tax year 6 April to the following 5 April. But there was no income tax in 1750 - that innovation was nearly 50 years away. However, there were regular tax payments to be made - Land Tax and Window Tax for example were paid on the quarter days and there was no concession to the shorter year. The Land Tax year ran from 25 March and that continued until the tax was abolished in 1963. The quarter days too remained as they were. So people paid rent on the same day they always had. So for the quarter June 24 to September 28 1752 they would have paid the same rent for eleven days less in their property. Similarly, servants who were normally paid on a quarter day would have been paid the same amount for eleven days less work. To resolve that problem tables were published suggesting how much the pay or rent should be reduced. Over the whole year the reduction should be 7¼d in the £. But over a quarter it would be 2s 5d in the pound, or just under an eighth. One publication (The True Briton, 20 September 1752, pp 118-119: from O'Brien, below, App.51) suggested using exactly an eighth which is 2s 6d, erring on the side of the employer for wages but on the side of the tenant for rent. There is evidence in a brilliant book by Robert Poole (Time's Alteration, 1998) that there was widespread confusion. Some payments were abated while others were allowed to run to the 'old' quarter days 11 days after the calendar dates. The opportunity for error and cheating people was extensive. The complications lasted for at least 50 years. 

Extra day
If the eleven days were added to the start of the Land Tax year on 25 March you get to 5 April for the start of the tax year. That is still one day short of its present starting date. And in in 1758 Window Tax was collected for the first time 'from and after' 5 April. That is the first mention of 5 April in the context of the tax year. Subsequent Acts also used that phrase from which historians have concluded that the tax year began on 5 April and ran to the following 4th April. 

Many theories have been advanced for where the extra day came from. The simplest and neatest explanation suggests that from 1753 the tax year should have begun on 5 April but the extra day was added in 1800. That year would have been a Leap Year under the old calendar but not under the new Gregorian Calendar as century years (except those divisible by 400) were no longer leap years. It is said there were protests. If people were denied their extra day of 29 February then they would be paying the same taxes but over a shorter period than they expected. So the Government extended the tax year by a day so it ended on 5 April and the next one began on 6 April 1800. There is little evidence for this. But you will find a version of it repeated many times if you google the question 'why does the tax year begin on 6 April'. Indeed, I had it myself in an earlier blog on this topic.

In any event that explanation failed to deal with 1900 except to say that no-one demanded the extra day for the tax year and the question did not arise in 2000 as it was divisible by 400 and so was a leap year. Incidentally, Microsoft Excel still counts the year 1900 as a Leap Year 250 years after the reform that stopped it being one. It blames Lotus whose spreadsheet software it bought in 1995. 

From
However there is a better and more complete explanation. Evidence has been gathered by Alan O'Brien in his massive self-published book Why the Tax Year Begins on Sixth April (2018) (here the etext is free and you can also buy the 672 pp paperback cheaper than on Amazon). It suggests that the whole question is misplaced. He looks in great detail at the legal use of the word 'from'. He provides evidence that the phrases 'from 25 March' and 'from and after 25 March' both mean that the year did in fact begin on the next day 26 March and end on 25th March following. And the phrase 'the year ending on the twenty fifth day of March' is found in a 1799 Land Tax Act. If you add eleven days to 26 March you get to 6 April and he says that is why the present tax year begins on that date. 

I found his book very persuasive. Not least because there are clear statements in tax laws from 1758 that the tax year ends on 5 April and absolutely none that it ends on 4 April - a date not mentioned once. The first Act to introduce an income tax in 1799 clearly did collect tax on income in the year which ended on 5 April 1800. It was the phrase which said that the year ran from 5 April 1799 until 5 April 1800 which may have caused the confusion suggesting an extra day was added for the Leap Year. But other words in the Act show that is not the case. The legal meaning of the word 'from' shows the first income tax was charged over a year beginning on 6 April 1799 and ending on 5 April 1800. As it now.

Paul Lewis
version 2.25
14 April 2020