FOUR MILLION FAIL TO CLAIM MARRIAGE ALLOWANCE

Up to four million married couples and civil partners are missing out on a new tax allowance that is worth £212 this year. 

The Marriage Allowance was announced in the 2013 Autumn Statement and allows a spouse (or civil partner) to transfer up to £1060 of their 2015/16 tax allowance to their partner if (a) their income is below the tax threshold (currently £10,600 a year) and (b) their spouse does not pay higher rate tax which begins on incomes above £42,385 a year. Both must also be born after 5 April 1935 because older couples get a bigger tax break - see Marriage Tax Breaks.

When the policy was announced the Government said that 4.2 million couples would be eligible. However, estimates of the cost of the allowance by the Treasury indicate that it expected only around 2.5 million to claim it in 2015/16 rising to no more than 3.25 million by 2017/18. 

But even those numbers have now been shown to be hopelessly optimistic.

HMRC figures given to Oliver Letwin MP in September show that only 165,000 had actually got the allowance. A similar number were said to be in the process of applying for it. Even if all their claims are successfully made by April that will still leave nearly four million couples without it and the Treasury saving £400 million off the expected cost of the measure this year and £890 million off the cost if everyone entitled claimed.

My requests to HMRC for more up to date figures have been refused. "We are not saying very much...
any figures we release...won’t be representative of the level of demand"

How it works
If a couple qualifies then the non-taxpayer can transfer £1060 of their unused personal allowance to their spouse. That will save the taxpaying spouse basic rate tax on that amount which is £212 a year (£17.66 a month or £4 a week).

The transfer can only be for the full amount of £1060. That can be done even if the person transferring the amount has an income close to their personal tax allowance. So someone with an income of £10,000 who is a non-taxpayer can transfer the full £1060 leaving themselves with a personal allowance of £10,600-£1060=£9540. So they will start being a taxpayer and pay basic rate tax on £10,000-£9540=£460 ie a tax bill of £92. Their spouse will save £212 leaving the couple £120 better off.

The future
In future years the Marriage Allowance will rise. It is fixed at 10% of the personal tax allowance. So on present plans it will be £1100 in 2016/17, £1120 in 2017/18, and £1250 by 2020/21.

Claiming and payment
You can claim the allowance online or through the income tax helpline 0300 200 3300. You will need National Insurance numbers and dates of birth for you and your spouse. Lines are open 0800-2000 Mon-Fri or 0800-1600 Saturday. You can also claim by sending a letter with your details to Pay As You Earn, HM Revenue and Customs, BX9 1AS. That might take longer.

Once the transfer is done the spouse receiving the extra allowance will have a suffix M added to their tax code and the code will be 106 higher, representing the full £1060 transferred. The one making the transfer will have a suffix N and their tax code will be 106 lower. 

It will be backdated to the start of the tax year and then reflected in a reduced amount of tax each month. 

HMRC says that the process is now simple and quick and that is confirmed by many on my twitter timeline who have got the allowance. 

The Marriage Allowance is only available to married couples and civil partners. It is not available to other couples.

More in Marriage Tax Breaks including allowances for older couples and blind people.

9 November 2015
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WOMEN WILL GET LESS THAN MEN FROM THE NEW STATE PENSION

Fewer than one in four women who qualify for the new state pension in 2016/17 will get the full amount. Right up to 2054 fewer women than men will qualify for the full standard pension.  

  

Year one 2016/17

The new DWP figures show that out of 90,000 women reaching state pension age in 2016/17 only 20,000 (22%) will get the full new state pension or more. The full rate will be £155.65 a week, although the rate will not be announced officially until 25 November. However, more than three out of four women will get less. Out of the 70,000 who do so, 40,000 will get the same as they would have got under the old state pension scheme – which by then will be £119.30 a week.

The figures are better for men. Out of 320,000 reaching State Pension Age in 2016/17, half (160,000) will get the full new state pension or more. Almost all of the other half – 140,000 out of 160,000 – will get the same pension they would have got under the old system.

Combining men and women for 2016/17 a total of 410,000 people will reach state pension age. Out of those 230,000 – more than half (56%) – will get less than the full amount of the pension. And the great majority of them – 180,000 (78%) – will get exactly the same pension they would have got under the old system.

The first five years

In the first five years of the scheme, 2016/17 to 2020/21, 690,000 women will reach state pension age but only 280,000 (41%) will get the full new State Pension or more. And 410,000 – about six out of ten (59%) – will get less. More than a third of those who get less will have their pension reduced because they have fewer than the 35 years of National Insurance contributions needed to get a full one. Nearly three quarters will have their pension cut because they paid into a pension at work. Some, of course, lose through both reasons. More details below under Causes.

This group are the WASPI women - named after their organisation Women Against State Pension Inequality - who campaign for compensation for women whose state pension age was raised twice. The most recent increase was announced only in 2011 and added up to 18 months to the state pension age of this group of women and they all got less than ten years' notice of the change.

They were born from 6 April 1953 to 5 April 1955 and will reach State Pension Age from 6 July 2016 to 5 April 2021.

Women born later than that will reach state pension age at 66 adding a year to the five years already planned since 1995. In theory they had at least 10 years notice of the change announced in 2011, though many only learned about it more recently.

For men the figures are 1,300,000 reaching pension age and 610,000 (47%) who get the full new State Pension and just over half (690,000 or 53%) will get less than the full amount.

Over ten years from 2016/17 to 2025/26 the position improves slightly. 63% of men and 55% of women get the full new state pension or more. From 2021/22 half of newly retired women or more will get the full new state pension. By the end of the ten years - those who reach state pension age at 66 in 2025/26 - almost a third (32%) of women and a quarter of men will get less than the full new state pension.

There are more men reaching state pension age in the period because women’s state pension age is being raised at an accelerated rate to equalise it with men's. So each year fewer women reach state pension age as it moves further into the future.

Causes

For the first time the figures allow us to see the numbers of men and women affected by the two reasons which cause so many to get less than the full new state pension.

First, in its early years the new state pension will be reduced for people who were 'contracted out' of State Second Pension and SERPS and paid instead into a private or company pension. Contracting out ended in April 2016. For those who were contracted out an amount is deducted from their entitlement to new State Pension. If that reduces the amount of the new State Pension to less than they would have got under the old system then they get that old pension amount instead. Hence the large number who will get the same or little more than the old pension.

In the first five years of the new scheme 1,020,000 will reach state pension age but get less than the full new pension and 830,000 (81%) will do so partly because of a contracted out deduction. Among men 85% of those getting less are affected by a contracted out deduction. For women - the WASPI group - the figure is 73%.

Second, the new state pension requires 35 years of National Insurance contributions to get a full pension. Since 2010 the old pension only needed 30 years. It will be harder for women than men to achieve this higher number. Missing the 35 year target is at least part of the reason for the reduced pension for one in five men (21%) and more than a third of women (37%) in the first five years of the new state pension - the WASPI women.

Some will have their pension reduced for both reasons About 7% of men and 10% of women lose some pension from both causes.

The longer term

The Department for Work and Pensions has resisted publishing a gender breakdown for the new pension. These new figures, obtained through a Freedom of Information request, not only show major discrimination against women in the early years but show that it will continue as far forward as the figures go – 2054. In the 2030s 15% of men but 19% of women will get less than the full standard new state pension. In the 2050s this settles down to 10% of men and 15% of women. Every year 60,000 women and 40,000 men will get less than the full pension. These are people currently in their late twenties or early thirties.

In those  years the only reason for getting less than the full state pension is failing to have at least 35 years of contributions. That is a condition that women will always find harder to fulfil than men.

No pension
In first five years of new state pension between 45,000 and 60,000 new state pensioners (2% to 3% of the total) will get no state pension due to having fewer than 10 years National Insurance Contributions. Under current rules they would get 1/30th of the pension for each year's contributions. By 2040 it is estimated this rule will be saving £650m a year.

In addition 30,000 to 40,000 people living overseas who reach state pension age in the first five years will be caught by this rule. That is about one in five UK overseas residents who reach state pension age in that time.

These figures from the May 2014 Impact Assessment (para.95) are approximate. 

Further information was given by DWP on 14 January 2016 in Impact of New State Pension (nSP) on an Individual's Pension Entitlement (p.17). It shows that from 2016 to 2050 a total of 110,000 people will have fewer than ten qualifying years of NICs. 30,000 (27%) of them are men and 80,000 (73%) are women. It does not break the numbers down into those in the UK and those living in other countries. The women who are denied a pension will not be entitled to a reduced pension on their spouse's contributions as they would be under the current rules.

SOURCES: The original data is from FOI 2015-4147 and 2015-4344 dated 29 October 2015. The figures provided are estimates based on the DWP’s ‘dynamic forecasting model’ Pensim2 and estimates by the Office for National Statistics of the number of people reaching State Pension Age each year. They take account of the latest laws about when State Pension Age will change. The figures are rounded to the nearest 10,000, which means that numbers and percentages may not add up to 100%. Although they are approximations, they are the best we will have and give a clear indication of the trends and likely outcomes.

You can read the full data here.

19 January 2016

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NEW STATE PENSION - FOI DATA IN FULL

This blogpost is the full data from FOI 2015-4147 and 2015-4344 dated 29 October 2015. The data is analysed in my blogpost NEW STATE PENSION CONTINUES TO DISCRIMINATE AGAINST WOMEN.

GET £140 OFF YOUR WINTER ELECTRICITY BILL

UPDATED 30 OCTOBER 2015

Two million people can get £140 off one electricity bill this winter. It's called the Warm Home Discount. Some will be paid automatically. Others have to claim or they will not get it. And the sooner they claim the better. Some who should be eligible are excluded. And some who switch to a smaller supplier will lose the right to claim it.

Low income pensioners

The biggest group – called the ‘core group’ – are more than one and a half million older people who get pension credit. They must get the guarantee part of pension credit - which means their income is no more than £151.20 a week (single) or £230.85 for a couple. Pension credit guarantee credit will make their income up to that amount. They must have received it on 12 July 2015. which means they must have been born on 5 December 1952 or earlier. They qualify even if they also get the savings credit part of pension credit. But not if the ONLY get the savings credit. 

Most people in the core group should not have to claim. Suppliers will use information from the Department for Work and Pensions to pay them automatically. However, some who qualify may not be identified. If you have heard nothing by Christmas and you get pension credit guarantee credit contact your energy supplier. Some of the smaller suppliers do not pay the discount and if your energy is supplied by one of them you will not get it. Supplier details below.

In past years some pensioners who did not qualify automatically could qualify under the broader group described below. That is less likely to happen in 2015/16.

Younger people

The broader group who qualify are low income households where there is a young child or someone with a disability. People in this group have to make a claim.

The energy suppliers now all have the same rules for what is a low income, what age of child counts, and what counts as a disability. In the past they set their own rules. This year some who qualified last time may not qualify this year. 

The rules are complex. But if your income is low and there are young or disabled children or disabled adults in the household you may be entitled to the discount.

If you think you may qualify contact your supplier using the phone number on your bill and say you are asking about the Warm Home Discount. Or look online on your supplier's website and search for Warm Home Discount. This list of suppliers has links to their websites. Almost all take you direct to the Warm Home Discount page. With one or two you may have to do a search.

Claims should be made as soon as possible. Suppliers have a fixed amount of money for this group and when that runs out the supplier will close its scheme for the broader group. Some may close by the end of December.

People in the broader group should not switch supplier until the discount is made. They could lose it if they do. 

Payment

The discount is normally taken off your winter electricity bill which could mean waiting until March 2016. People in the core group who have moved supplier since 12 July 2015 will be sent a cheque by their old supplier. Broader group customers who move supplier before the discount is made will probably lose it. People on prepayment meters will have the credit added to their key. Some will be sent a voucher to take to the Post Office to credit the key. Other suppliers will update the key automatically. All discounts should be made by the end of March 2016. 

Supplier

The bigger electricity suppliers are legally obliged to offer the Warm Home Discount and some others do so. Twenty brands offer it.

Atlantic Energy (SSE)
British Gas
Co-operative Energy
EDF Energy
E.on
Ebico (Equipower and Equigas operated by SSE)
First Utility
Manweb (Scottish Power)
M&S Energy (operated by SSE)
Npower
OVO Energy
Sainsbury's Energy (British Gas)
Scottish Gas (British Gas)
Scottish Hydro (SSE)
Scottish Power (SSE)
Southern Electric (SSE)
SSE
Swalec (SSE)
Utilita
Utility Warehouse

Twenty smaller suppliers do not give the Warm Home Discount. Some of these are in the top ten for cheap tariffs. But switching to them will mean you will not get the warm home discount in future years and will not be able to claim it this year. 

Better Energy
Daligas
Ecotricity
Extra Energy
Fairerpower Energy
Flow Energy
GB Energy
GnErgy
GoEffortless Energy
Good Energy
Green Energy UK
Green Star Energy
iSupply Energy
LoCO2 Energy
Peterborough Energy
Robin Hood Energy
Southend Energy
Spark Energy
Woodland Trust Energy
Zog Energy

The Warm Home Discount applies in England, Wales, and Scotland. It does not apply in Northern Ireland.

The Warm Home Discount scheme does not apply to people in park homes (static mobile homes) though for the first time this year suppliers do have the discretion to extend it to them or to offer other help.

More information

The official Government guide to the Warm Home Discount.

The Home Heat Helpline 0800 33 66 99 can give advice about the Warm Home Discount and other schemes to help with heating bills. You could also contact the Energy Saving Trust or the Centre forSustainable Energy  They can give advice about local help with insulation as well as national schemes.

30 October 2015 

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FROZEN PENSIONS ABROAD

When the state pension rises in April by £3.35 a week to £119.30 more than half a million state pensioners who paid for their pension for all or most of their working lives will get no increase. 

They live in more than 150 countries around the world where the UK pension is paid but is frozen - it never increases with inflation.

Unequal abroad
UK pensioners living abroad fall into two groups.

• About 660,000 UK pensioners who live in the EU or one of 20 or so other countries get their UK pension increased each year as it is back home.
• Ex-pats living in the other 156 sovereign states of the world do not get this rise. Their state pension is frozen at the rate it was first paid abroad. So 560,000 UK pensioners who live in these countries are locked out from any rise even though they have paid their taxes here, often for all their working life.

Nine out of ten of these ‘frozen’ pensioners live in four countries - Australia, Canada, New Zealand, and South Africa. People in their nineties may be living on a UK basic state pension first paid to them abroad in 1985 which is just £21.50 a week instead of the £115.95 which would they would get in 2015/16 if they lived in the UK. In 2013 the record was said to be held by Annie Carr, aged 100, who got a pension of just £6.12 a week, first paid to her in 1970 when she moved to be with her daughter in Australia.

But another 55,000 live in more than 100 countries around the world. 

John Markham, the Director of UK Parliamentary Affairs for the International Consortium of British Pensioners, is trying to gather support among people in the UK aged 45 to 65 who may plan to retire to a frozen country without realising it. 

"A lot of people of that age consider emigrating and they don't know their pension will be frozen. Also true of a lot of ethnic minorities. People from India and Bangladesh, for example, simply don't know that if they return to their birth countries their UK pension will be frozen." 

The reasons for this odd division between frozen countries and the rest are historical. After World War II the UK entered into agreements with a number of countries where it had interests or a special relationship to pay full pensions to UK citizens living there. Joining the EU added more countries to the list as no discrimination is allowed against citizens of member state and EU enlargement has brought more in.

Border anomalies

The result is that UK pensioners living in the USA get their pensions uprated each year as if they were back home. Across the border in Canada they are frozen. In the Philippines UK pensions are raised each year with inflation. In nearby Australia they are not. Other anomalous pairs of neighbours where UK ex-pats live include Barbados, uprated; Trinidad frozen. France uprated; Andorra frozen. Israel, uprated; Lebanon, frozen. Mauritius uprated, Madagascar frozen.

Cost

The latest estimate for paying all ex-pats the same pension as they would get in the UK this year is £655 million. 

John Markham recognises that cost is a key issue.

"We want to discuss an age-tiered solution. This year index the pensions of the over 85s. Next year, 80-85s. Then those 75 to 80. And so on. That would cost around £100m in the first year, a figure they could slip through without anyone noticing. An alternative suggestion is just to do it for new retirees from, say, next year. That would cost nothing. Once it is done for one group it's a foot in the door and harder to defend doing for others."

He also says that every UK pensioner who chooses to live abroad saves the country a lot of money by not relying on the state support they would get at home.  - they don't use the NHS or care services. The campaign puts that figure at £7,700 per year in health care, age related benefits and miscellaneous pension credits for each 'frozen pensioner' a total of £3 billion a year. 

The Campaign believes that unfreezing pensions would encourage more people to retire overseas, potentially saving UK taxpayers more money over future years.

Government view

Many politicians have taken up the cause of frozen pensions over their years in opposition. But once in Government they look at that cost and decide they prefer to uphold the status quo. As a result governments of all colours have ignored parliamentary motions and whipped their MPs to win every vote in Parliament. 

In 2014 Parliament passed the Pensions Act which introduced the new State Pension. It also set in legislative stone the discrimination between frozen and uprated countries.

A DWP spokeswoman told me "People who are considering emigrating abroad should always consider the impact the move could have on their future State Pension entitlement.”

Court action

Governments have also defended the current rules in court. A key legal challenge was brought by a campaigner living in South Africa, Annette Carson. Her case was finally rejected in 2005 by the House of Lords. 

Twelve years ago the ex-pat campaigners began a parallel case in the European Court of Human Rights to try to find some fresh lever to move the Government. Thirteen pensioners argued that under the European Convention of Human Rights the UK government had to protect their property and was prohibited from discrimination. The state pension was property, paid for by National Insurance contributions. So by paying increases in some countries but not others the UK Government was discriminating against their enjoyment of their property according to where they chose to live.

It was a clever argument but in March 2010 the Grand Chamber of the European Court of Human Rights rejected it by 11 votes to 6, ruling that freezing the state pensions paid to people in 150 overseas countries was not a violation of their human rights because the circumstances of people were different depending where they lived and therefore discrimination in their treatment did not breach the convention.

Countries where the UK state pension is uprated 

Only in the 51 countries listed here does the UK state pension rise each year as it does in the UK.

Alderney, Austria, Barbados, Belgium, Bermuda, Bosnia Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Falkland Islands (frozen but Falklands Legislative Assembly tops up to UK level), Finland, France, Germany, Gibraltar, Greece, Guernsey (includes Herm, Jethou, Lihou), Hungary, Iceland, Ireland, Isle of Man, Israel, Italy, Jamaica, Jersey, Kosovo, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Mauritius, Montenegro, Netherlands, Norway, Philippines, Poland, Portugal, Romania, Sark (includes Brecqhou), Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United States of America.

Background with links to official documents up to the start of 2014 are contained in this House of Commons Library note. 

The Pension Justice website contains a lot of useful information and case studies. The campaign also has a Facebook page and is on twitter @pensionjustice. 

21 November 2015

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GAD paper on the Triple Lock

This paper, "Triple Lock" increases to state pension - Background, effects, and risks was prepared by the Government Actuary's Department and published on its website on Friday 9 October 2015. Within a very short time it was taken down and replaced with a page saying it had been published in error. Later the Treasury said it was a 'discussion paper' which had been uploaded by the IT department by mistake.

Its finding that the triple lock cost £6 billion in 2015/16 and would eventually take nearly a quarter of the National Insurance Fund will be controversial. As will the implicit conclusion that the triple lock is unsustainable in the long-term. That is a view which I understand the Government Actuary himself holds. 

Personally I think the triple lock will last for this Parliament but not beyond. How pensions will be uprated after that will be a major political issue at a time when benefits for younger age groups will have been frozen for four years and those for others linked to CPI - which is currently around zero - or cut sharply.

The paper is published here in the interests of open government. 

19 October 2015

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FILL THAT GAP - reach pension age before 6 April 2016

These rules apply to men born before 6 April 1951 and women born before 6 April 1953. There are different rules for younger people. 

You need 30 years of National Insurance contributions to get a full state pension. If you have fewer than 30 years National Insurance contributions you will get a reduced pension. So if you have 20 years you will get 2/3rds of a full pension. 

It may be possible to pay some extra contributions now to fill that gap. They are called voluntary Class 3 National Insurance contributions. But the rules about which gaps you can fill are complex and can seem unfair.

Contributions at work

You will have got contributions by being in work and paying full Class 1 contributions. You may not even have noticed as they are just deducted from you pay. If you earned very little then no NI contributions would have been paid. For a narrow band of earnings above very little but below where you actually started to pay them then you would have been credited with them. 

Reduced rate contributions paid by some married women do not count. If you have gaps caused by paying those contributions you cannot fill them. It was a very unfair system but nothing can be done about it now.

If you were self-employed and paid Class 2 contributions they count towards your pension equally with Class 1.

Credits

Some people who did not pay contributions were credited with them. The rules about credited contributions are very complicated. But broadly speaking you may be able to get credits for years you 

• Got child benefit for a child under 16 (that changed to under 12 from 2010)
• Were unemployed and looking for a job on Jobseeker's Allowance - sometimes even if you were not on benefit
• Were on employment and support allowance, or were eligible for it, or got statutory sick pay
• Received working tax credit 
• Cared for someone who was sick or disabled
• Got maternity or paternity benefits 
• Were male and did not work in the few years approaching the age of  65.

Some credits are given automatically; others have to be claimed. The gov.uk website publishes a full list of credits and which have to be claimed. There are also details of how to check your record. It is all ridiculously complicated but can be very worthwhile!

If you find you still have gaps in your National Insurance record and you have less than 30 years contributions you may be able to fill them now. 

Six years back

The general rule is you can only fill a gap which is up to six years old. So now, in 2015/16, you can fill gaps back to and including the tax year 2009/10. The cost of those contributions depends how old they are. For 2009/10 to 2012/13 they will cost £733.20 for each year you fill. Filling 2013/14 will cost £704.60 and 2014/15 will be £722.80. Those rates will probably change from 6 April 2016. 

Longer ago

Some people are allowed to fill much older gaps going right back to 1975/76. The people who can do this are 

• men born 6 April 1945 to 5 April 1950 
• women born 6 April 1950 to 5 October 1952 

They all reached state pension age between 6 April 2010 and 5 April 2015. They must also have at least 20 years National Insurance contributions – paid or credited (though at least one must have been actually paid).

You must pay these extra contributions within six years from the date when you reached state pension. So it is too late for the oldest in this group and there is not long left for some of the slightly younger ones. The cost is £733.20 for each year paid. 

This group can also pay to fill gaps back to 2009/10, but only for years before they reached state pension age.

What you get

Remember it is only worth paying enough contributions to ensure you have 30 years. Paying for extra years after that does not increase your pension further. In exchange for the contributions you will get extra pension of around £200 a year from the date you pay. So the payback time for the cost of the contributions is less than four years. The pension you buy is basic state pension and will rise by at least 2.5% a year until April 2020 and after that in line with earnings, unless the law is changed.

More information: Filling older gaps
Paying Class 3 voluntary national insurance contributions

14 October 2015

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