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National Insurance contributions, reformed

The Pensions Bill is to be amended to allow higher state pension. 28 October 2008. Last Friday, the government proposed an amendment to the Pensions Bill to allow people to buy up to an additional six years of voluntary National Insurance contributions, over and above those permitted under the current time limits, in order to enjoy a higher state pension.

The measures are the latest part of a programme of reform that will see the state pension system offer a fairer deal to women and carers.

They will benefit thousands of women who traditionally have incomplete National Insurance records and therefore often receive a low state pension.

The proposals will apply to those who reach State Pension age between 6 April 2008 and 5 April 2015 and who already have 20 qualifying years on their National Insurance record, taking account of Home Responsibilities Protection.

The value of class 3 National Insurance contributions is increasing significantly because of the Government’s pension reforms, in particular the reduction in the number of qualifying years needed for a full state pension from 44 (for a man) and 39 (for a woman) to 30 for both men and women from April 2010. The Government will increase the price of a Class 3 contribution accordingly. This will ensure the package will overall be cost neutral.

Announcing the proposal, Secretary of State James Purnell said:

"Since 1997 we have reduced absolute pensioner poverty by 1.9 million and our radical reforms of the State Pension have made it fairer, more generous and more widely available. By 2010 around 75% of women reaching State Pension Age will be entitled to a full Basic State Pension, rising to over 90% by 2025, compared to around 35% today.

"However, we are mindful of the potential disadvantages faced by those who do not have a full work history, mostly women and those with caring responsibilities. I would like to pay tribute to the tireless efforts of Baroness Hollis who has championed their cause so effectively.

"This is fair, affordable and straightforward – and it will give more people the chance of a more secure future to look forward to in retirement."

The Government is already committed to making radical changes to the pension system through the Pensions Act 2007 and current Pensions Bill:

* The number of qualifying years needed for a full basic State Pension will reduce to 30 for both men and women (from 39 for women and 44 for men currently).

* New weekly National Insurance credits will be introduced which will recognise caring for children or disabled people in the same way as paid work. These credits will replace Home Responsibilities Protection and will count towards both the Basic State Pension and State Second Pension.

* Measures in the current Pensions Bill will provide equality of opportunity for male and female employees to build up a private pension. We expect up to three million extra women to participate in workplace pension saving as a result of our reforms, many of them gaining access for the first time.

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