How women can boost their pensions

Find out how the government's latest changes could help more women (and men who've taken career breaks) claim the full State Pension.

Latest research carried out by Prudential has revealed that women due to retire this year will have, on average a pension of around £13,600. Their male counterparts, on the other hand, will have £20,300, nearly £6,700 more.

And we all know why. Women are far more likely to take time out of the workforce to raise a family or care for elderly relatives, resulting in smaller pension pots. What's more, years of not making National Insurance contributions affects their State Pension too, leaving many entitled to little or no state provision.

It's therefore not surprising to hear that, while 85% of men retire on the full, State Pension, only a third of women are entitled.

How can we claim the full, basic state pension?

Most of us know that men need 44, so-called "qualifying years" of National Insurance (Nics) contributions in order to claim the full, basic State Pension (currently £95.25 per week for a single person, and £152.30 for a couple). Women need 39 years.

Anyone short of the maximum could "buy back" missing years from the state. However, this was limited to the last six tax years in which you hadn't paid Nics.

And anyone taking time out of their career to care for children or elderly relatives would be eligible to apply for Home Responsibilities Protection (HRP) which reduces the number of qualifying years you need.

So what's changed?

Last week, however, saw some changes come into force.

For a start, the cost of buying back a missing year has risen significantly from around £421 to £626.

And anyone who has reached, or will reach the State Pension age between 6 April 2008 and 5 April 2015 who has at least 20 qualifying years will be entitled to buy back an extra six years with a one-off payment, doubling the current maximum.

And what's about to change?

But that's not all - the number of qualifying years required is also about to reduce. Anyone due to retire after 6 April 2010, will need just 30 qualifying years to claim the full State Pension.

And HRP is to be replaced with a system of credits which will count towards your State Pension entitlement. Importantly, it will be possible to claim the full State Pension on these carer's credits alone.

Retirement age is also due to rise. Men can currently claim their State Pension at 65 and women, 60. However, between 2010 and 2020, the retirement age for women is to rise to 65 also.

What's more, from 2024 the age at which you can claim the State Pension will rise to 66, from 2034 it will rise to 67, and from 2044 you'll need to be 68 before you can claim.

So what does that mean for me?

The effects of these changes are obviously different depending upon your sex and income, and for many the current changes will make no difference at all.

For those eligible, being able to buy back an extra six years sounds expensive, especially if done as a one-off payment. However, when you realise that could boost your State Pension by over £950 per year, you may decide it is worth it.

Reducing the number of qualifying years should make many more people eligible for the full, State Pension.

And the fact that full-time carers will be able to claim the full State Pension from Carer's credit alone in the future in my opinion is great news.

Watch Out

But if you have little or no savings, do your sums carefully before paying for any extra contributions, as it could affect your entitlement to Pension Credit.

If you're a woman concerned about reaching retirement, here are a few tips to help boost that pension pot:

Top tips to boost women's pensions

1.  For a start, find out how much you might expect upon retirement using this State Pension forecast, or this Pension Calculator.
2.  If you don't already have one, try and set up a pension as soon as possible. Ideally, join your employer's pension scheme, especially if the company contributes too.
3.  Higher-rate tax payers should remember that they can claim back a further 18% tax relief on their pension contributions via their annual tax return.
4.  Up to £2,808 can be stashed away in a stakeholder pension. And the brilliant bit is that tax relief will boost this sum to £3,600, even for those who don't pay tax. What's more, we can pay into someone else's pension without affecting the tax we pay, so if you're not working, your partner could make your pension contributions on your behalf.
5.  In order to qualify for HRP you need to make sure that the Child Benefit or Carer's allowance is paid to you as the two things are linked. If it's being paid to your partner, you can find out how to transfer the HRP to your name here.
6.  If you're on maternity leave keep those pension contributions up, even if you only get statutory maternity pay. This is because your employer must continue to pay the percentage of your full salary (if it already did so previously), while you simply pay the percentage of the maternity pay you're getting.
7.  If you're unlucky enough to go through a divorce and have no real pension of your own, due to bringing up children etc, you may be able to claim a chunk of your husband's pension fund, to deposit into your own.
8.  Remember, pensions aren't the only way to save for retirement - if you're not keen you could stash your cash into an ISA, shares or other savings vehicle.

The government reckons up to 555k people (mainly women) could benefit from the policy change and that by 2010, 75% of women will be entitled to the full State Pension. By 2025, that figure rises to 90%. Let's hope they're right. In the meantime, maybe it's time to start looking at how we can help those already retired.

More: Are Stakeholder pensions properly protected? | How to choose the right SIPP