WOMEN DO WORSE THAN MEN WITH NEW STATE PENSION

UPDATE 2 NOVEMBER 2015

THIS BLOGPOST HAS BEEN SUPERSEDED BY NEW STATE PENSION CONTINUES TO DISCRIMINATE AGAINST WOMEN.

DO NOT RELY ON THE DATA BELOW WHICH HAS BEEN SUPERSEDED BY NEW INFORMATION FROM THE DWP.

Only one in four women who qualify for the new state pension in 2016/17 will get the full amount, which will be at least £151.25 a week. New figures show that out of 80,000 women reaching state pension age in 2016/17 only 20,000 (25%) will get the full rate or more. But 60,000 - three out of four (75%) - will get a much reduced pension. In many cases it will be the same as they would have got under the old state pension scheme - which by then will be around £119 a week.

The figures for 2016/17 are better for men - but not much. Just over four out of ten - 41% - will get the full new state pension or more. The rest - nearly six out of ten - will get a much reduced pension similar to that paid under the old system.

The Department for Work and Pensions has resisted publishing a gender breakdown for the early years of the new pension. It took a Freedom of Information (FOI) request to get any figures. And they still did not reveal the proportion of women and of men expected to get less than the full amount. When I requested these figures I was told "These figures aren’t in the public domain, but you could FOI."

However, it then emerged that the gender breakdown of those reaching state pension age up to 2033/34 had been published in 2013 - by the DWP! Those figures are out of date but unlikely to have changed significantly. Combining the two sets of data showed that the discrimination against women would continue to 2033/34 at least when 21% would get less than the full pension compared with only 15% of men.

In the first five years of the scheme, 2016/17 to 2020/21, 680,000 women will reach state pension age but only 250,000 (37%) will get the full new State Pension and 430,000 - nearly two out of three (63%) - will get less . For men the figures are 1,280,000 reaching pension age and 610,000 (48%) who get the full new State Pension and just over half (670,000 or 52%) will get less than the full amount. There are fewer women reaching state pension age than men because over that period their state pension age is raised at an accelerated rate to equalise it with men's. 

The table shows the new State Pension year by year the number and percentage of men and women who will get less than the full amount.

These calculations are based on figures from the stated sources. The DWP says the 2013 estimates are out of date. But it will not provide updated ones so I have had to put in a Freedom of Information request. When I get the updated figures this table will be updated too.

People will get a reduced new state pension for two reasons.

First, in its early years the new state pension will be reduced for time 'contracted out' and paying into a private or company pension. For many people that will reduce the amount of the new state pension to less than they would have got under the old system. In those cases they will get the pension they would have got under the old system. Hence the large number who have no more than the old pension.

Second, the new state pension requires 35 years' National Insurance contributions to get a full pension. The old pension only needs 30 years. It will be harder for women than men to achieve this number.

14 October 2015
vs. 1.02

TRIMMING THE NEW STATE PENSION

UPDATE 21 NOVEMBER 2015
This paper was written in October 2015 and is now out of date. The Government did not use any sleight of hand on the 2016 pension rates. They are set out in my uprating blog

ORIGINAL VERSION
Is the government planning to save money by changing the rules and trimming the new state pension by more than £3 a week?

Under the current triple lock rules the basic state pension - paid to those who reach pension age before 6 April 2016 - will rise by prices, earnings, or 2.5% whichever is the highest. Prices are measured by the September CPI to be published on 13 October. The most recent CPI was 0.0% and the next one is expected to be much the same.

The earnings rise is measured by the annual increase in pay across the whole economy from May to July 2014 compared with the same period in 2015. The final revised figure is published on 14 October. The preliminary May to July figure was published last week and showed an annual rise of 2.9%. If the final revised figure remains above 2.5% then under the triple lock that will be used to increase the basic state pension from April 2016.

A 2.9% rise would mean the basic state pension increased by £3.35 from £115.95 to £119.30 a week. That is not under threat.

Setting the new state pension

But the level of the new single tier state pension is more doubtful. It will be paid to people who reach state pension age from 6 April 2016 and will be considerably higher than the old basic state pension. One of its purposes is to reduce the number of pensioners who need means-tested benefits. So it will be set above the current level where means-tested help is paid.  

Pensioners can currently get a means-tested benefit called pension credit if their weekly income is below a certain amount. If it is below what is called the guarantee credit then their income is made up to that figure. For the last four years the guarantee credit has risen by the same cash amount as the basic state pension. So this year when the state pension rose by £2.85 to £115.95 the guarantee credit rose by the same cash amount to £151.20.

The new state pension will be higher than the guarantee credit paid in April 2016. If the existing rules were followed then the guarantee credit would be raised by the same cash increase as the basic state pension. Adding £3.35 to £151.20 would raise the guarantee credit to £154.55. And so the new single tier state pension would have to be at least £154.60 a week.

Trimming

But could the Government be about to change those long established rules? The rise in the current basic pension is protected by the triple lock agreed by the current government for the rest of this parliament.

The previous coalition government raised the guarantee element of pension credit by the same cash amount as the basic state pension. Under the law the guarantee credit has to rise with earnings. But because earnings rises were low it took the view that it would raise the guarantee element by more than the law provided for.

This government has never stated its policy on the guarantee credit. And it has decided that other means-tested benefits are either frozen or set to rise with inflation - which with the CPI currently at zero is the same thing. So the government could decide to freeze the guarantee pension credit at its present level of £151.20 for 2016/17. That would require a change in the law (specifically the Social Security Administration Act 1992, s.150A). If it took that course of action the new single tier state pension could be just 5p higher at £151.25 and still fulfil the pledge that it would keep most new pensioners off means-tested benefits.

A new attempt by DWP to explain the new state pension uses that figure in its explanation.

That would mean an effective £3.35 cut compared with the level of the new state pension calculated under current rules.

It would not break any guarantees given by this government. It would go some way to answer the critics who say all the cuts are currently being borne by younger households. And it would contribute hundreds of millions of pounds savings to help deliver the £20 billion cuts which the Government says are needed to balance the budget by 2019/20.

The actual level of the basic state pension, pension credit, and the new single tier pension will be announced with or shortly after the Autumn Statement, expected on 25 November.

11 October 2015

vs. 1.03

MERGING INCOME TAX AND NATIONAL INSURANCE

The Government has asked the Office of Tax Simplification to investigate 'closer alignment' of income tax and National Insurance. It could result in a single new tax which would probably apply only to earnings.

The task will be difficult and there will be winners and losers. Here is a brief summary of the main differences between the two taxes.

• NI is due only on earnings; income tax is due on all income including pensions, rental income, savings interest, and dividends.
• NI is calculated on weekly earnings; income tax is calculated on annual income
• NI is not charged under age 16 or above state pension age; income tax is due at all ages
• NI starts on earnings of £155 a week (£8060 per year); income tax begins above £10,600 per year but that threshold vanishes as income rises from £100,000 to £121,200 a year.
• NI for employees is 12% up to £815 per week (£42,385 a year); income tax for all is 20% up to £42,385 a year.
• NI for self employed is £2.80 a week (if profits exceed £5965) plus 9% of profits between £8060 to £42,385 a year. income tax for self-employed is at same rates and bands as for everyone.
• NI falls to 2% on earnings/profits (employees and self-employed) above £815 per week (£42,385 a year); income tax rises to 40% above £42,385 and 45% above £150,000
• NI of 13.8% is also paid by employers on the earnings of their employees above £155 a week; income tax is only paid by individuals.
• NI does not apply to savings interest and dividends; Income tax now has separate rules and thresholds for savings interest and dividends.
• NI is not charged on some payments made to employees; income tax is charged on all payments made to employees including benefits in kind. 

These differences mean that the calculation and collection of NI and income tax are very different. Employers have to collect both separately though at the same time through PAYE. Income other than earnings is taxed in different 

National Insurance is paid into the National Insurance Fund - basically a Treasury accounting exercise - and the proceeds are used only to pay state pension, a few other benefits and work related payments and a percentage is paid to the NHS.

Income tax all goes to the Treasury and is used as the Government chooses. 

Paying National Insurance contributions gives individuals entitlement to state pension and a few other benefits such as the non-contributory Jobseeker's Allowance and Employment and Support Allowance. 

In the last twelve months income tax brought in £142.1 billion (32.0% of receipts), NI brought in £111.5bn (21.4% of receipts).

22 July 2015

vs. 1.00

RINGING THE CHANGES

From Wednesday 1 July 2015 you are not charged for making a call to any number beginning 0800 or 0808. Despite the fact that these numbers are called Freephone, before the change a call to 0800 or 0808 could be very expensive indeed if made from a mobile phone or some landlines. 

From 1 July 2015 new Ofcom rules mean that all calls from any provider to 0800 or 0808 will cost the caller nothing. That is not to say they will be free to the receiver. The firm offering the number will still pay for the call. To avoid that cost many firms are expected to replace 0800 with 03 numbers. They are charged the same as 01 and 02 numbers and are included in many monthly inclusive ‘bundles’ so effectively cost the caller nothing anyway. 

Other firms will move 0800 numbers to 084 or 087 numbers. The charges for those are also being changed from 1 July so that the cost to the caller will be made clearer - though not necessarily cheaper. 

In future, the charge will be in two parts

• Your phone provider will make what is called an ‘access charge’. That will be a per minute charge for all numbers that begin 084, 087, 09 or 118 which will be stated on every bill. 
• The number you are calling will also make a per minute ‘service charge’ for the call. That will be stated in every advert or written communication about the service. If it is not then report them to the Advertising Standards Authority. 

Phone providers have now announced their access charges which vary from 5p to 44p a minute. For landlines TalkTalk charges 5p a minute, BT 9.58p, VirginMedia 10.25p, and EE 11p. Charges from mobiles are much higher. TalkTalk mobile charges 20p a minute. Vodafone 23p until 10 August when it will rise to 45p, O2 25p, Virgin 36p, and EE 44p a minute.

The service charges will vary but are capped at 7p a minute for 084 numbers and at 13p a minute for 087 numbers. 118 calls are not capped but will be much more expensive. And 09 numbers can charge up to £3.60 per minute and a single call can cost at least £6. 09 offers ‘specialist services’ including horoscopes, advice, and sex lines.

Some financial firms which are still offering 084 and 087 numbers must tell you from 1 July what the service charge will be in any published material that refers to them. You may find that substituting a '3' for the '8' will get your though at normal call rates.

Complexity
Ofcom tells me that it expects some mobile providers to muddy the transparent waters of the new simpler prices. Or, as they might put it, engage in imaginative competitive deals. The providers making the higher access charges are expected to offer customers the choice of paying an extra fee to access 084 or 087 numbers with no service charge. EE has already announced an 084 and 087 add-on. By paying an extra £3 a month you get up to 300 minutes of calls to 084 and 087 numbers at no extra charge. 

BT is joining in the complexification by continuing to include 0845 and 0870 numbers it its inclusive bundles so they will be free for the hours the bundle covers. But beware – other 084 and 087 numbers are not included in that deal. 

The freephone changes do not apply to 0500 numbers which may still be expensive to call. They will be phased out in 2017.

More details on all the changes at UK Calling Info  

Paul Lewis
1 July 2015
vs. 1.1

WAGE RISES TO BOOST TRIPLE LOCK

Average earnings rose by 2.7% compared with a year ago. The figure – provisional and for the three months February to April 2015 – was published this week. I'm sure many of you are shouting 'mine didn't' or 'pay frozen for three years' or 'barely 1% in my case'. But that is not the topic. The rise in the official measure of average pay above 2.5% has big implications for the triple lock.

The triple lock, you will recall, raises the basic state pension each April by prices, earnings, or 2.5% whichever is the highest. Prices are now (since 2012) measured by the Consumer Prices Index (CPI) and earnings are measured using the average earnings figure published each month which this month reached 2.7%. 

The CPI used is the one for September – which is published mid-October. 

The average earnings figure uses the measure for the whole economy, seasonally adjusted, taken from May to July, and compared with the same three months a year earlier. It is the figure for total pay (which includes bonuses) and waits for the revised estimate which is published a month after the provisional figure. That final figure is officially the statistic KAC3 for May to July (revised). It is also published mid-October. 

If the figure published four months from now is above 2.5% then it will be inserted in the triple lock calculations instead of the 2.5% floor. So the fact that statistic KAC3 February to April (provisional) is 2.7% is highly significant. Not least because if we look back at the revised figures over the last twelve months and project them forward in a straight line, then KAC3 revised for May to July is projected to be 3.5%. If that turns out to be the true figure it will be good news for pensioners and bad news for the Chancellor.

The Office for Budget responsibility had estimated that the rise in average pay for 2015/16 would be 2.3% and CPI would be 0.2%. That meant the triple lock to fix the state pension next April would use 2.5% leading to a basic pension of £118.85 a week. But if the earnings rise is 3.5% then that would be the figure used instead of 2.5%. If so the basic state pension would rise from its present £115.95 not to £118.85 but by another £1.15 a week to £120.00. The extra cost of that extra rise for 13 million pensioners will be around £700 million in 2016/17. And each year after that the costs will grow as that amount is itself uprated. Over the parliament it could add £4 billion to the cost of the state pension.

The extra cost does not stop there. It also affects the starting level of the single tier state pension due from April which would have to be £1.15 higher than the £154.10 which a 2.5% rise implies. And that figure of £155.25 would then set the benchmark for the future because the triple lock – under present plans – applies to all new pensions from April 2016 paid up to that single tier amount.

In my April blog Triple Lock to Continue I estimated that the extra cost of using the triple lock rather than CPI to uprate the state pension was at least £12 billion and could be up to £17 billion over the current parliament (see http://paullewismoney.blogspot.co.uk/2015/04/triple-lock-to-continue.html). If wage growth is higher than the official predictions – and this month’s data indicates it might be – then the extra cost of the triple lock will be even higher.

This blogpost is an based on my Money Box newsletter 19 June 2015. Subscribe here 

19 June 2015

Vs. 1.00

WHERE HAVE ALL THE BANK FINES GONE?

Almost every week a bank or firm – even an individual – is fined millions of pounds for cheating someone or other. In the last few weeks Barclays was fined £284m over rigging foreign exchange markets and Lloyds £117m over failing to pay the right redress to customers it had already conned by mis-selling them  PPI. 

So who gets this fine money?

It’s a question I am often asked. And the short answer is George Osborne or, as he is officially known – the Consolidated Fund!

In the past, fines by the regulator were small – a few thousands of pounds – and the money was used to offset some of the costs of regulation. But from April 2012 that changed. Seeing the large number of substantial fines coming through for banks that had cheated the markets by rigging LIBOR interest rates the Government decided that it would follow the US Treasury and keep the money itself – after the costs of enforcement (around £45 million a year) had been deducted by the regulator – the Financial Conduct Authority.

Initially the Government sweetened the pill of snaffling this money by dedicating the fines to good causes. The first announcement in October 2012 allocated £35 million of the LIBOR fines to ‘support Britain’s armed forces community’. A year later, in his 2013 Autumn Statement, George Osborne announced he would “make a further £100 million of LIBOR fines available to our brilliant military charities and extend support to those who care for the work of our police, fire and ambulance services.”

The money has partly been used to pay for rehabilitation of injured soldiers. The fines for cheating on the Forex markets are earmarked for the NHS. And before the election the Conservatives promised to use a £227 million fine imposed on Deutsche Bank to fund 50,000 apprenticeships. All things which you may think the Government would be paying for anyway.

Now the Government has told Money Marketing – which tried to track the money down – that the fines are collected centrally and “the Treasury then allocates it to relevant departments.” So it seems it will in future mainly be used to fund general Government spending.

The amounts that are now being raised are eye-watering. In 2014 alone fines totalled £1.4 billion, mainly from the big banks over foreign exchange and LIBOR fixing. And so far this year another £814 million has been clocked up for similar transgressions.

These are tempting sums for any Chancellor, especially one who is committed to begin the process of reducing the £1.5 trillion national debt before the end of this Parliament.

This piece was first published in the Money Box newsletter 11 June 2015. Subscribe here 

WHO WILL PAY FOR CARERS' PENSIONS?

A hundred thousand severely disabled people are being told they must set up a pension scheme for their carer. And no-one knows how the cost of doing so will be met. 

The people affected take what are called direct payments from their local authority to arrange their own care. The system was introduced in 2012 in England, Scotland, and Wales as a way of giving disabled people more independence and control over their care needs and how they were met. 

The local authority gives them the money - a direct payment - to pay for a carer or carers depending what they need. That payment is enough to include all the costs of employment - including national insurance, sick pay, holiday pay and so on. 

In general it has been seen as a great success - better for the disabled person and cheaper for the local authority. But it does mean that the disabled person becomes an employer. And from 1 June 2015 even the smallest employers will begin to be brought into the auto-enrolment of workplace pensions. They will have to provide a pension for their employee and pay into it. 

Who is auto-enrolled?
The people affected will have a carer who is 

• their employee, 
• aged 22 to state pension age (65 for a man and around 62.5 for a woman), and 
• paid more than £10,000 a year - which is £192.30 a week or £833.33 a month. 

Someone on minimum wage of £6.50 an hour would reach those levels at 30 hours a week. And carers paid more than that - as many are - will be well above them. All figures are for gross pay.

People who are outside those ages or earn less than £10,000 will not have to be automatically enrolled. But may request to join a pension and if they do one will have to be provided. In some cases the employer will have to pay contributions too.

Employees can opt out of the auto-enrolment pension. But the employer must then re-auto-enrol them every three years. 

What will it cost?
The cost at first is likely to be modest. The contributions into the pension are 1% from employee and 1% from employer of the gross pay above £5824 (up to a maximum of £42,385).  So a carer working 35 hours a week on £9 an hour will earn £16,380 a year. The cost of 1% of the band of earnings which will be £8.80 a month which the disabled person will have to pay into a pension scheme. The carer will also get less. Another £8.80 will be taken off their gross income and paid in. However, they will get tax relief on that amount so the net cost will be £7.33 off their net pay.

But from October 2017 the contributions double to 2% each and then from October 2018 they rise to 3% from the employer and 5% from the employee. So the costs will by then be more significant, costing the disabled person £26.26 a month and the employee £36.67 on gross pay of £1365 a month.

Commercial employers can get tax relief on the payments they make - they count as a cost of employment and reduce the corporation tax they pay. But this tax relief is not of course available for an employer who is not a company and makes no profit. 

When will it happen?
Small employers with fewer than 30 employees will have to start auto-enrolment on what is called their staging date. That is the first of the month from 1 June 2015 to 1 April 2017. The date depends on the employer's PAYE reference number. A year before that date the employer will be written to by the Pensions Regulator, and again at six months and one month. Failure to comply with the new auto-enrolment duties can result in a fine of up to £400. Some disabled people have found the fairly small print letters and the tone of them intimidating.

The Pensions Regulator estimates that 100,000 disabled people will have to enrol their carer. That implies about 5000 a month will enter the system over the final 21 months of staging. 

The Pensions Regulator has more information online. But a recent survey by the Office for National Statistics found that 27% of disabled adults had never used the internet. 

Who will pay?
There seems little doubt that the local authority making the direct payment should meet the extra costs of auto-enrolment pensions. They are obliged to meet all the costs of employing the carer. Guidance issued by the Department for health says 

"The local authority should have regard to whether there will be costs such as recruitment costs, Employers’ National Insurance Contributions, and any other costs by reason of the way in which the adult’s needs will be met with the direct payment" (Care and Support Statutory Guidance Issued under the Care Act 2014 para 12.27) 

and footnote 170 on that page adds 

"Employers (including direct payment holders) will be required to comply with the duty to automatically enrol eligible workers into a qualifying workplace pension scheme and to meet the minimum contributions required by law."

But the local authorities seem completely unprepared. Will they review and revise the direct payments? How quickly will they do that? And how will they estimate the extra costs?

No-one seems to know. The Association of Directors of Adult Social Services told me it did not know but would start collecting some data in the future. And the Local Government Association told Money Box it did not know.

The Department for Work and Pensions - which is responsible for direct payments - told me 

"The local authority should consider these employment costs, including automatic enrolment pension contributions, when making the direct payment award."

But the Department would not say if that meant the local authority had to meet the costs nor how they would do so.

It will be hard for a local authority to work out the cost of auto-enrolment. The staging date system means that disabled people will be brought into the scheme depending on their PAYE reference number which bears no relation to the area where they live. And the cost of contributions will depend on the exact amounts carers are paid. There seems to be no mechanism for the disabled person to convey this information back to the local authority. And it is not clear how or when the care package that includes these costs can be revised.

More information
You can listen to the Money Box item on auto-enrolment and disabled people on Money Box 23 May 2015 

24 May 2015
Vs. 1.01