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By Neil Waterman
Know Your Money Editor

The recently-proposed amendment to the pensions bill, which will allow people to buy up to six more years of voluntary National Insurance contributions, could mean that individuals will be able to enjoy a greater state income in their retirement.

New reforms are designed to offer a better deal for women and carers, increasing the level of fairness in the pension system. Those who reach state pension age between April 6th 2008 and April 5th 2015 are set to be affected by the changes.

What is changing?

The change announced last week by pensions secretary James Purnell will allow people to buy up to six additional years of voluntary National Insurance contributions, on top of the current additional six years that are allowed.

If people have at least 20 years of National Insurance contributions, taking account of the Home Responsibilities Protection, then they will be able to buy more credit - meaning that each and every year that they receive a state pension, they will receive a larger amount of money.

Mr Purnell said: "[The] radical reforms of the state pension have made it fairer, more generous and more widely available. By 2010, around 75 per cent of women reaching state pension age will be entitled to a full basic state pension."

He added that this will rise to more than 90 per cent by 2025, up from the current levels of around 35 per cent.

Such a change will help to bring more security to more people in their retirement, he said.

The full state pension

In order to qualify for the full state pension, men must have made 44 years of contributions and women should have made 39 years' of contribution.

However, as of April 2010, there will be changes to this. The government plans to increase the value of class-three National Insurance contributions, as the number of years of work that must be undertaken to qualify for the full state pension will reduce to 30 years for both men and women.

By increasing the value of the contributions, the government believes the overall pension package will remain cost neutral.

However, these changes are for the coming years, while there are changes that are also taking place now. The move to allow people to buy more years of contributions to top up their state pension is designed to increase overall levels of wealth in retirement.

And although there will be an initial outlay now, the cost is set to repay itself as people receiving the state pension will get an increased amount for every year of their retirement.

Is it all good?

The amendments to the pensions bill have been welcomed by a number of organisations.

Following the announcement, the TUC said that the move follows a "long and determined" fight by campaigners, unions and charities and will give a fairer deal to women of retirement age.

Director general of Age Concern, Gordon Lishman, said that the organisation is "delighted" by the move, noting that it will give thousands of older women the chance to increase the size of their state pension.

Who will benefit?

The changes are primarily designed to benefit women, who have in the past tended to have breaks from their work, due to child birth. As a result of this and other factors, they have incomplete National Insurance records and therefore a lower state pension.

But the new changes, coupled with the Home Responsibilities Protection - which means women who spent time looking after children, or who claimed certain other benefits - allow for women to boost their contributions by a potentially significant amount.

When certain benefits were claimed - including income support, disability living allowance, or child benefit, National Insurance contributions will be automatically logged by the government, meaning that these years will also count - and help increase the level of retirement funding for older people.

Research conducted by Scottish Widows found that women are still falling behind men in terms of pension provision. The study indicated that less than half of women are properly prepared for retirement. Such changes to state provision may serve to highlight the importance of retirement provision.

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