Time for women to get a fair pensions deal

A long-awaited report from the Department for Work and Pensions has conceded that only 30% of women retiring today are entitled to a full basic state pension.

 

Childbirth, marriage, divorce and being widowed have all had a significant impact on the pension accrual for many women, it said, while reiterating the determination of everyone concerned to “tackle this equality”. But leading welfare groups say ministers have already spent enough time discussing the problem. Now, they insist, it’s time for action. “The government has repeatedly admitted that women’s pensions are a national scandal, but has so far failed to act,” says Gordon Lishman, Age Concern’s director general. “The current system is desperately unfair and inflexible.”

 

The origins of the state pension can be traced back to the 1940s, when it was designed to cater for the needs of a male breadwinner and a financially dependent female. Entitlement was based on the number of years worked and, on retirement, the pension accrued would cover the needs of them both.

 

Today, most families need two incomes due to crippling taxation, sky-high mortgage repayments and the demands of the consumer-driven society. However, many women are likely to be lower paid and take career breaks to have children.

 

Marriage breakdowns are now commonplace. Back in 1961 there were 27,224 divorces, according to the Office for National Statistics (OFN). In 2004 the number was up to 167,116 – a 514% increase. This means many more pensioners will be living alone.

 

To get a full basic state pension a man must have toiled away to provide National Insurance contributions for 44 years, while women must have 39 years under their belts – by virtue of the fact they currently retire five years earlier. Occupational pension schemes, meanwhile, are obviously linked to employment, while the amount private policies eventually pay out is dependent on how much has been paid in over the years.

 

By their very nature, both these schemes have been little help to the majority of women who have either spent fewer years working, or whose jobs have been lower paid than their male colleagues. The result is that a quarter of female pensioners now live in poverty.

 

So are things changing? There’s certainly been an increase in the number of women in the workforce. Female employment rates have risen from a relatively modest 55% in 1983 to 70% today. However, over 84% of all women in work are part-timers – compared to just 10% of men. And, on average, women employed full-time now earn 13.2% less than men, according to the OFN. This is an improvement on last year’s 14.5% total, but it’s still a long way off equality.

 

This issue is likely to be discussed in more detail during the coming months, following the imminent publication of a report from the Women and Work Commission.

Age Concern has produced a blueprint for reform consisting of four key steps which, it claims, are urgently needed to tackle the “scandal of female pensioner poverty”. The first is a reform of the pension system to enable women to build up entitlement through a tailor-made system. This, it has been suggested, could even be based on the collection of a series of credits, particularly for carers and those on low incomes.

 

The second idea is to guarantee that all those with a full pension entitlement will be protected from means testing which would give them an incentive to increase savings.

Third on the list is the introduction of a reformed second pension to benefit those not covered by either occupational or private schemes.

 

Finally, it says, changes to private and occupational pensions need to be made to ensure they better reflect the working patterns of modern women. Making them transparent and understandable, it adds, will be crucial.

 

The National Pensioners Convention, on the other hand, takes a different stance. It simply wants to see the introduction of a higher, universal pension which people are entitled to, regardless of the amount of contributions. Spokesman Neil Duncan-Jordan says this would mean the basic state pension increased from its current level of £82.05 a week to £109.45, and would cost the government an extra £10 billion.

 

“We have to do something special to address the fact that one in four women pensioners are living below the poverty line,” he says. “We can’t credit people with more National Insurance contributions because that would be too bureaucratic.” Duncan-Jordan also insists that going down the means-tested route won’t work. The latest government figures, for example, reveal that over 500,000 single women pensioners were in poverty because they haven’t claimed the Minimum Income Guarantee - which has since been replaced by the Pension Credit.

 

Welfare groups are now dissecting the small print of the DWP report, Women and Pensions, as well as Adair Turner’s second report into the pensions crisis, which proposed a state pension based on residency and a new government-run savings scheme. It will, in the end, come down to the government to make a decision on what needs to happen.

 

The battles pensioner groups have waged in recent years over contentious issues such as council tax will have left the Labour hierarchy in little doubt of the strength of feeling. As one leading pension campaigner comments: “We’re effectively an 8.8 million-strong grey army. If we all decided to make our feelings felt at the ballot box then the current government would be in for a rough ride.”

 

Finding how to encourage women back to work, looking for ways to help them build up retirement income, and plans to improve awareness of pensions are all supposedly at the top of the government’s agenda for 2006.

 

But time is of the essence. “We urgently need radical reform of the pensions system, which puts the needs of women and carers at its heart,” adds Age Concern’s Gordon Lishman. “Unless the Government acts quickly, future generations of women will be sentenced to a retirement in poverty.”

 

 

The Pension Service

Website: thepensionservice.gov.uk

Tel: 0845 60 60 265

 

The Pensions Advisory Service

Website: opas.org.uk

Tel: 0845 601 2923

 

Financial Services Authority

Website: fsa.gov.uk

Tel: 0845 606 1234