Commentary on Sections Part 1 – State Pension Section 11: Reduced rate elections: effect on section 4 pensionsSection 12: Reduced rate elections: pension for women with no section 4 pensionSchedule 6: Reduced rate elections: effect on rate of section 4 pensionSchedule 7: Reduced rate elections: basic amount of state pension under section 12
Until 1977, married women and widows in employment could opt out of any future entitlement to a state pension in their own right by paying National Insurance at a reduced rate. Women who were self-employed could choose not to pay the flat-rate self-employed stamp. This was referred to as a “reduced-rate election”. Women who took a reduced-rate election gained entitlement to a state pension by relying on their spouse’s National Insurance record.
For those reaching pensionable age on or after the start of the new scheme, the Act removes the option for an individual to rely on his or her spouse’s or civil partner’s National Insurance record (other than the provision for surviving spouses and civil partners to inherit pension, as described above) but does set out alternative arrangements for certain women who made reduced-rate elections.
These arrangements will apply if a reduced-rate election had still been in force at the start of the final 35 tax years before the tax year in which the woman reached pensionable age.
Where a woman meets the 35-year condition and has some qualifying years attributable to the period before the new state pension is introduced, section 11 and Schedule 6 provide for the state pension to be calculated in an alternative way if this is more beneficial than the transitional rate of pension to which she would otherwise be entitled. This alternative calculation provides a transitional rate of state pension at least equivalent to the combination of any additional pension based on her own National Insurance record and the equivalent of the current scheme’s basic state pension. This will be either the rate applicable for a spouse or civil partner (currently approximately 60 per cent of the full rate basic state pension) payable when both she and her husband or civil partner have reached pensionable age, or the equivalent of the full basic state pension if she is widowed or divorced. As a simplification measure, the full standard rates will be used so the amounts will not be dependent on the spouse’s or civil partner’s National Insurance record.
Section 12 and Schedule 7 make comparable provision for a woman with no qualifying years for the period before the new state pension is introduced. In these circumstances, the state pension would comprise an amount equivalent to the appropriate standard rate of the current scheme’s basic state pension for a married person, widow or divorcee, or civil partner, surviving civil partner, or person whose civil partnership has been dissolved.