Mechanics of the System
In principle there are two government departments which deal with the state pension. Her Majesty's Revenue and Customs (HMRC) is the department which you normally have to contact in order to obtain a pension forecast and it is to them that a cheque should be sent so as to increase the number of qualifying years which in turn increases the ultimate amount of the state pension. The Pension Service is part of the Department for Work and Pensions (DWP) and they will produce the pension forecast for anyone who is approaching or is already over retirement age. Any cheque to improve one's contribution record should however still be sent to HMRC.
Mention has already been made of some of the measures which need to be followed in order to receive a pension forecast however the following is a more detailed list of the steps to be taken. A pension forecast can be obtained from HMRC in Newcastle by telephone or by writing. Following the recent changes the form CA3638 is being superseded by the form BR19. It is useful to include on the form one's National Insurance number but if it is not available a NI record can usually be traced for someone with relatively obscure or foreign name. A common name like Michael Smith would prove to be more problematic. A period of 4-8 weeks should be allowed to receive the forecast and more so following the recent government cut-backs. The forecast is a fairly comprehensive 4 to 5 page letter showing the pension payable upon reaching retirement age based upon one's current contribution record. It will also detail the cost of catching up with the last 6 years (about £3500) and the 6 additional years set out in "the New Opportunity" (about £3900) assuming that you meet the 2 conditions mentioned earlier. Cheques made out in the name of HMRC and sent to Newcastle should always include on the back one's name address and National Insurance number. With 13,400 civil servants working in the offices at Newcastle it is an additional safeguard. Many expatriates in Spain are surprised that the offices in Newcastle does not contact them regarding their pension however this is mainly due to the fact that once abroad expatriates forget to inform them of their new address. Without this the staff in Newcastle can do very little.
As indicated above it is the Pension Service which forms part of the Department for Work and Pensions that organises the payment of retirement pensions. Four months before reaching retirement age they will write explaining how the pension is paid, when it is paid, asking for bank account details and requesting that a "claim pack" be filled out. Someone who has not worked in a official capacity in Spain and has never paid into the Spanish Social Security system can send off the "claim pack" directly to Newcastle and they will eventually pay the retirement pension into a bank account anywhere in the world. An expatriate who has paid into the Spanish Social Security system must apply for his her UK state pension through their local Spanish Social Security office. Although the designated bank account can be anywhere in the world the Spanish authorities may insist on a bank account in Spain especially if one is resident in Spain, will be using the Spanish health service and pay tax in Spain.
Improving Your State Pension
It has already been mentioned that it is possible to pay NI contributions in respect of the previous 6 years if they have been missed. Reducing the number of years that it is necessary to contribute to receive a full pension to 30 was fantastic news for UK expatriates but less so for UK workers who must always pay NI contributions when employed regardless of their contribution record. The government has also introduced a new scheme called the "New Opportunity" whereby it is also possible to go back in one's National Insurance record as far as 1975 and catch up with payments in respect of an additional 6 years. The conditions are that it is necessary to have 20 years already paid up and to be reaching retirement age before April 5th 2015. From the above it can be seen that with a little foresight it is not too difficult to be in a position to receive a full state pension.
Deferring Your State Pension
In 2008 the Pension Service produced a 103 page booklet entitled "State Pension Deferral" which was designed to encourage people to put off claiming their state pension and in this way the government would make short term savings. The scheme meant that for each full year you put off claiming, you would receive an extra pound a week for every £10 of your state pension. While this may appear to be an attractive proposition, delaying for 5 years a weekly pension of £100 per week would mean losing £26,000 of income which would take 10 years to recover at the enhanced weekly pension rate. It is also possible to elect for a lump sum payment but this is not a lot more than the total pension that would have been given up. Unless you have been contacted by Him up above regarding your life expectancy you should always take any pension when it becomes payable!
Overlap with Spanish System
It has already been mentioned that there is some overlap between the UK pension rules and the Spanish Social Security system with regard to expatriates who have contributed to the Spanish system at the time of applying for their UK state pension. Unlike the new provisions of the 2007 Pension Act whereby one year of contributions gives the right to UK pension, albeit a minimal payment, in Spain it is necessary to have contributed in respect of 15 years in order to receive a pension at all. However expatriates who do not have 15 years paid up in Spain can make use of their UK record to give a combined total of more than 15 years which may make the, eligible for a pension from both countries based upon their contribution record in each country. They must however have paid contributions for 2 of these years in the 15 years prior to making their claim. There 2 years can be in either Spain or the UK. For example someone who has worked for 5 years in France, Spain, Germany and Italy may not reach the minimum number of years necessary in any of the four countries even thought he or she has paid 20 years of contributions in total. In this case there is an agreement in the European Union that each country will pay 25% of the pension due. The most common fallacy is the belief that it is not possible to receive a Spanish pension as well as a UK state pension. From the above it can be seen that this is not the case.
Increase in Pension Age
One of the measures taken by the government to reduce the pensions budget was to increase the retirement age. This was first suggested by the previous Labour government when it proposed that the age at which women could receive their state pension would gradually increase from 60 to 65 between 2010 and 2020 and that the state pension age for both men and women would increase from 65 to 68 between 2024 and 2046. The arrival of the current coalition government and its austerity measures has brought about a number of changes to this policy. It was decided that the pension age for women would be accelerated so that it will be 65 by the year 2018. This will be achived by it increasing more quickly to 65 between April 2016 and November 2018. Subsequent to this it has been proposed that with effect from December 2018 the state pension age for both men and women will begin to increase to reach 66 by April 2020. On November 29th 2011 the government announced that the state pension age will increase to 67 between 2026 and 2028. Some of these proposals are not yet law so we can expect further modifications should the government's finances continue to deteriorate.