Select Committee on Social Security Seventh Report


23. The evidence received by the Committee focused our attention on a number of groups who seem to be most at risk of poverty, now, in the future or both. These groups included: older pensioners; pensioners with disabilities and their carers; women; people from black and minority ethnic groups; self-employed people; and pensioners in institutional care. Although we will look at each in turn, it should be noted that the categories overlap to some extent. For example, women significantly outnumber men in the age group 75 and over; and, in 1999, only 27% of working age Pakistani and Bangladeshi women participated in the labour market.[48]

Older pensioners

24. That the recently retired tend to be better off than older pensioners was strongly backed up by evidence presented to us by the National Pensioners Convention. It stated that average gross incomes for recently retired single pensioners, and for those over 75 were as follows:[49]

(figures in £s)

Recently Retired
75 or over
Benefit Income
Occupational pension
Investment income
Other income

25. The National Pensioners Convention went on to explain that "more than half the difference in total income between the two groups is accounted for by the earnings of the recently retired, which in most cases are unlikely to continue for more than a few years. The newly retired also have twice as much investment income, but this too is likely to diminish over the years of retirement as savings are used up. The difference in the value of occupational pensions might appear to represent a more permanent advantage for the younger group, but occupational pensions, like state pensions, once in payment, are at best price-indexed and do not rise in line with average earnings. What now seems a generous occupational pension, therefore, will seem much less generous compared with average earnings 10 or 15 years hence, on which the pensions of those then reaching retirement will be based. In short, while younger pensioners have higher incomes than older pensioners, the figures do not suggest that, when they in turn become older pensioners, they will be better off than pensioners now."[50]

26. The point about occupational pensions and the age of pensioners receiving them was reinforced in evidence presented to us jointly by the National Federation of Post Office & BT Pensioners, the National Association of British Steel Pensioners and the Civil Service Pensioners' Alliance. It stated that "The older a pensioner is, the more likely they are to have a small occupational pension.... for the BT pension scheme (and we have no reason to suspect it will be different for other pension schemes), nearly 50% of pensioners over 85 receive a pension of less than £76 per week. Nearly 30% of 60-64 year olds receive more than £183 per week compared to only 13% of 85-90 year olds.... Because the pension of the older person has risen only in line with the RPI and not the average earnings index, they have fallen behind year on year. It is also the case that when pensioners initially retire they often feel that they are reasonably well off with their occupational pension. However, as time goes on, they find it harder and harder to cope because of the increasing gap between themselves and people still in work."[51]

27. Age Concern also stated that "older pensioners are more likely to face poverty. They may not have had the same opportunities to pay into second pensions as current workers. Furthermore, income that was adequate on retirement may not be 20 years on, due to: income not keeping pace with general living standards or falling in real terms; savings being used up; and costs increasing due to disability.[52] Ms Holly Sutherland, Director of the Microsimulation Unit at the Department of Economics, University of Cambridge, agreed that older pensioners might have extra needs because of mobility difficulties and care needs which might not be met from public funds. She also noted that they are likely to face further needs which are more difficult for them to meet than is the case for the newly retired: "their non-financial assets will have depreciated and therefore their needs are higher because, even if when they retired they had a nice house and all the things that people need (and we consider that people need things like washing machines, televisions and videos and so on), twenty years into retirement many of those things will have broken down or need replacing, and the very crucial things like the house needing repair.... and unless the pensioners have adequate income they will not be able to do that and their general wellbeing will lower...."[53]

28. Generally, older pensioners face greater challenges than those who are recently retired. They are, currently, less likely to have an occupational pension; where they do, this will have diminished, in relative terms, because it will have been linked, at best, to prices and not to incomes. While the coverage of occupational pensions is likely to increase, the price-related nature of them will not, meaning that this will remain as both a long- and short-term issue. Also, older pensioners' incomes from earnings and investments are lower. As well as having a lower income, older pensioners can face greater expenses, related to disability, mobility needs and depreciation of assets. Therefore, we believe the need to provide enhanced assistance to older pensioners will need to remain a long-term objective for any government. We return to this point at paragraph 143 below.

Pensioners with disabilities and their carers

29. We have already noted that older pensioners can face poverty as a result of expenditure incurred because of disability. However, this problem is not confined to older pensioners, but can be faced by pensioners with disabilities, regardless of their age. We were told that "disabled people face considerable extra disability-related costs for items such as heating, electricity and transport" and that home care charges are "a major additional cost for disabled pensioners...Charges in one third of local authorities can leave disabled people with less than Income Support to live on. Some councils take up to 90% of a disabled pensioner's Attendance Allowance in charges."[54] As well as these points, Disability Alliance also told us that Attendance Allowance take-up rates are low at 40%-60% of those eligible,[55] a point which was supported by the RNIB.[56] Disability Alliance also stated that "older disabled people are discriminated against within the benefits system because Disability Living Allowance (DLA) is not available to those becoming disabled over the age of 65. As a result most older disabled people get no financial help with mobility-related extra costs."[57]

30. Evidence presented to us by the Carers National Association and the Alzheimer's Society noted that carers were likely to be the poorest pensioners and that some were experiencing "acute financial difficulties."[58] It recommended a series of measures to help older carers, including:

- allowing carers over the age of 65 to make a first claim for ICA;

- doubling the level of carer premium;

- introducing a carers' strand in the Pensioner Credit;

- ensuring that carers can benefit from the stakeholder pension;

- abolishing or reducing VAT on privately purchased homecare;

- re-examining the extent to which disability benefits meet the costs of disability.

31. We have not had the opportunity to assess the validity of these arguments in this brief inquiry. However, we note the points raised by organisations representing older people with disabilities and their carers and believe that this area merits further attention. The specific issue of poverty amongst pensioners with disabilities and their carers is one which we hope to be able to look at in more detail in the future.

Women pensioners

32. The Fawcett Society told us that "Women make up the majority of pensioners in the UK today. They also make up the majority of the poorest pensioners with twice as many women as men being dependent on income support and older women living alone being the poorest sector of pensioners."[59] Women pensioners are at particular risk of poverty, principally for two reasons: their longer age expectation means that they are more likely than men to face the problems encountered by older pensioners described above; they are likely to have had a more intermittent work history than men, and their work was likely to have been lower paid and this will be reflected in their pension rights. Age Concern told us that "in general women have lower incomes than men.... Older women living alone are particularly likely to be living in poverty."[60]

33. The evidence submitted to us jointly by the National Federation of Post Office & BT Pensioners, the National Association of British Steel Pensioners and the Civil Service Pensioners' Alliance stated that "women tend to be much worse off than men.... many women have broken service because of family commitments and it is well known that they usually command smaller salaries than men. There are over three times as many women as men with pensions of less than £38 per week. In contrast, there are nearly eight times as many men than women receiving between £153 and £192 per week. Women will also receive much smaller state pensions than men, again due, amongst other things, to their broken working patterns."[61] The Government Actuary's Department noted that basic state pension income will be lower for those women whose entitlement is based on their husband's NI contributions.[62]

34. The National Pensioners Convention told us that "the main difference between male and female pensioners' average incomes is the amount of occupational pension they receive. The average gross income of single male pensioners was £168 a week in 1997/98, including £44 occupational pension; for single women it was £144, including £29 occupational pension."[63]

35. The National Pensioners Convention drew our attention to a recent publication of theirs which put forward some of the long term structural and social reasons for women's inferior pension rights. It stated that "Women are handicapped in building a good pension income because pension systems were originally designed for those with continuous full time employment. As it is still the case that women take the majority of responsibility for caring for children, as well as caring for sick and elderly relatives and looking after the household, the average woman spends many years outside the labour market and additional years working part time. During these years women are unable to build entitlement to employment-based pensions. Additionally, women in work still earn less on average than men. Women full timers earn on average 80% of male full timers' hourly rate and women part timers just 60%. So even whilst in work women are liable to build up less entitlement to pension income. To obtain sufficient occupational or personal pension for an income well above Income Support level it is necessary to have been employed full time for most of your working life. Amongst women aged over 65 the average time in employment was just 27 years, with only 19 of those in full time employment."[64]

36. How far this situation will persist is not clear. A number of factors - home responsibilities protection for the basic state pension,[65] equal pay legislation,[66] the judgement that exclusion of part-time employees from an occupational pension scheme contravened the Sex Discrimination Act,[67] the general rise in occupational pension coverage and in women's participation in paid work - should help to improve women pensioners' incomes.

37. However, it is likely to be the case that older women will still be at risk of poverty. As Mr Tom Ross told us, "the position of women, certainly in absolute terms, is changing. More women are in work. The credits which are available under the basic state pension, for example, will mean that a larger proportion of women retiring.... in 25 or 30 years' time.... will be retiring with basic state pensions in their own right which will be rather greater than those available in the past or currently by virtue of their husbands' contributions. Against that, of course, the basic state pension to which they will be entitled under current policies relative to earnings will have declined even further..... Equally, more women will be in work and pensions based on work will help the position of women. On the other hand, we are all very aware of the incidence of divorce which in itself will lead to more people, men and women, living in retirement in a single setting rather than as couples. When you put all these things together my response would be that the position of women overall in retirement is likely to improve but relative to all pensioners the position of older women is still quite likely to be that they are going to be among the poorest."[68]

38. The Fawcett Society argued that the most effective way of tackling poverty amongst women pensioners would be to raise the basic state pension. It stated that "60% of women do not have any form of occupational or private pension and the basic state pension makes up the majority, if not the total of their income after retirement. We would like to see the vital link with earnings being re-established for the basic state pension."[69] However, as we discuss at paragraph 56 below, only a small proportion of women qualify for a full basic state pension in their own right.

Pensioners from ethnic groups

39. As with women and with older pensioners, the position of pensioners from ethnic groups will to a large extent be determined by their employment histories, their NI contributions, and their participation in occupational pensions. Age Concern told us that "to avoid any kind of poverty, you need additional pensions and resources. We know that people from ethnic minority groups, particularly certain ethnic minority groups, are likely to.... have lower wages, have lower levels of savings, and [that] these aspects are likely to mean that they will tend to be poor in retirement."[70]

40. Additionally, it was suggested to us that pensioners from ethnic groups might face particular problems in claiming benefits to which they are entitled. Age Concern said that "We know that ethnic minority older people suffer additional problems. Sometimes they cannot understand the benefits system as well, and are really much more scared about going and finding out about it and getting what they are due to have. And we do have a very complex system of claiming benefits, which, of course, is very off-putting to anybody, particularly if you come from an ethnic minority with a different language."[71] This issue is discussed in more detail in paragraphs 127 to 130 below, in connection with the Government's take-up campaign for the Minimum Income Guarantee.

41. The National Pensioners Convention stated that "ethnic minorities are an extremely important element, because there must now be very large numbers of people who have come to this country over the last half century, are now reaching retirement age, without full contribution records. I do not know what the solution to that problem is, but it certainly is a problem, and, of course, those are likely to be, or many of them are likely to be, the most difficult people to pick up in take-up campaigns for Income Support."[72]

42. Despite the concerns raised about poverty amongst pensioners from ethnic groups, there is an absence of hard data in this area, as noted by Age Concern[73] and by the National Pensioners Convention.[74] The Minister appeared to acknowledge this by telling us that "there is not a single document that I have been able to go to in terms of income and problems with the pension" but he did think that there were a "series of activities going on" which would highlight the concerns raised. The Minister himself outlined a range of challenges concerning pensioners from ethnic groups, including: the absence of built-up NI contributions from people entering the country halfway though their working life; the fact that many minority ethnic people would have worked in low-paid occupations (although he could not provide figures on this); and the issue of language difficulties in relation to pensions and benefits, which could be a particular problem for women.[75]

43. During our visit to Barnet, the pensioners from ethnic groups told us of the extent to which they were dependent on their working family members for financial support. They were concerned that the financial burden of looking after the older generation of ethnic pensioners borne by the current working generation will inhibit that generation's ability to make provision for its own old age, thus potentially creating an avoidable cycle of poverty amongst ethnic groups.

44. Despite his concern regarding these issues, and the lack of clear data, the Minister did not believe that there was a need to commission research to establish levels of poverty among ethnic groups. He said, "I do not have any information that shows me there is a great tranche of people missed out simply because they are members of minority ethnic communities. We do a lot in designing our forms, using languages, having interpreters. I do not have any solid information that shows me that there is a major problem. I am aware of the issue that they will be low paid because of the jobs [undertaken] and there will be a higher propensity of elder minority ethnic members .... on means-tested benefit".[76]

45. We received little hard data on the incomes of pensioners from ethnic groups. We share the concerns of those who gave evidence that the risk of poverty in old age may be high among some of these groups, and that at present, monitoring of the incomes of the current and future generations of pensioners from ethnic groups is inadequate. We welcome the Minister's recognition that there are particular problems and challenges regarding pensions for people from ethnic groups. However, we are not convinced that adequate information currently exists regarding the scale or true nature of these problems and we therefore recommend that the Government commission research to provide more information concerning the extent of poverty among ethnic pensioners.

Self-employed people

46. As we have seen for each of the categories above, people are at risk of being in poverty as pensioners if they have an intermittent employment history, with incomplete contributions. A related problem could be that of the self employed. Approximately 15% of the working population is self-employed.[77] By definition, this group will not be part of occupational pension schemes. While they can make provision for private pensions, there is evidence that many do not do so, indeed, the Minister told us that half of all self-employed people do not have any second pension provision.[78] Mr Tom Ross of the Pension Provision Group told us that "Although some of the self­employed make substantial pension provision, there is evidence that many do not, especially the new-start self­employed. So inadequate past provision by and on behalf of these people is an important factor."[79]

47. The problem of those self-employed people who do not make private provision for pensions is exacerbated by the fact that they are not eligible for SERPS or for the state second pension. Therefore, in the absence of any such private provision they fall back on only the state basic pension, and therefore need to rely on means-tested benefits. Mr Tom Ross concluded that "I think there is a very big challenge facing government and indeed those who supply funded pensions to get a greater penetration of pension provision to the self­employed. Indeed, I think it is for consideration, given the composition and nature of self­employment now, whether a way should not be found to include them in the state second pension as well."[80] The Pension Provision Group has produced research into pension provision for the self-employed which was expected to be published soon after this report.[81]

48. The Minister noted that a further problem was that the nature of self-employment was changing, with the self-employed less frequently being in a position to sell a business upon retirement, as had previously been the case. He acknowledged that "we must not miss out the millions of self-employed people, low paid and moderate earnings. We are designing future pension provisions for the rest of the operation." He also noted that the self-employed "are not involved at the present time in the state second pension. It may be that in the near future the self-employed on a compulsory basis would have to pay for it, it would not come cost free."[82] The Minister made it clear that the issue of compulsion in relation to the self-employed and the state second pension had not yet been looked at in detail, but that a debate would get underway once the Pension Provision Group published its forthcoming report.[83]

49. We note that there is potentially a serious problem which could result in many self-employed people being reliant on means-tested benefits upon retirement, a fact which is exacerbated by the changing nature of self-employment and the capital assets owned by the self-employed. We recognise that there is an argument for compelling the self-employed to make provision for a second pension, and that there is scope for this to be achieved via the state second pension. We recommend that this option be considered once the Pension Provision Group has produced its forthcoming report into pension provision for the self-employed.

Pensioners in institutional care

50. All the standard statistics that the Committee has had access to exclude those in institutional care. But several groups drew to our attention the extremely low levels of income which pensioners are left to survive on if they have to enter residential care. The personal expenses allowance which pensioners are left with after paying residential care fees is set at £15.45 per week. Citizens Advice Bureaux report that "the current level is totally inadequate to cover the every day expenses of a client living in a care home and to allow them a minimal level of independence."[84] The National Association of Pension Funds agreed that the level "is not sufficient for pensioners to meet their basic needs."[85] Age Concern also called the personal expenses allowance "inadequate."[86] Among the expenses which have to be covered from the allowance are clothing, transport, leisure activities, extras such as sweets and fruit, liabilities for a former home until it is sold such as standing charges and insurance and even, in some cases, services such as chiropody, physiotherapy, incontinence pads and escort services which should more properly be funded as part of a local authority care plan.[87]

51. We agree that the current level of the personal expenses allowance for pensioners living in residential care is inadequate. We recommend that the Government commissions research to establish the level of personal expenses which is necessary to enable pensioners in institutional care to live their lives with dignity.

Pensioners most at risk of poverty: conclusions

52. The evidence we have received leads us to conclude that it would be complacent to think that disparities in the incomes of older and younger pensioners and between retired men and women are set to disappear, although they may narrow. However, the oldest look set to remain among the poorest, and particularly the oldest women. In addition, we believe that there are new challenges to be faced, particularly in ascertaining the true situation regarding poverty amongst pensioners from ethnic groups and how this can best be tackled, and regarding the pension provision of self-employed people.

48   Evidence provided by Age Concern, PP17B, not printed.  Back

49   Ev., p. 35, para. 2.4. Back

50   Ibid. Back

51   Ev., p. 15, paras 8-10. Back

52   Ev., p.3, para 4.5. Back

53   Q. 210. Back

54   Ev., p. 131. Back

55   Ibid. Back

56   Ev., p. 138,. Back

57   Ev., p. 131. Back

58   Ev., p. 126. Back

59   Ev., p. 162, para 2. Back

60   Ev., p. 4, para. 4.10. Back

61   Ev., p. 146, para. 11. Back

62   Q 137. This option was withdrawn in April 1977, although those who had already opted to pay reduced contributions retained their right to continue to do so. Back

63   Ev., p. 33, para. 2.6. Back

64   Zelda Curtis, Spotlight on Women's Pensions: How the Pension System fails Women, (NPC, 2000), quoted in Ev., p. 33, para. 2.6. Back

65   Introduced in1978. Back

66   Equal Pay Act 1970. Back

67   Bilka-Kaufhaus GmbH v Weber von Hertz, 1987 ICR 110. Back

68   Q 116. Back

69   Ev., p. 162, para. 4. Back

70   Q 18. Back

71   Q 15.  Back

72   Q 69. Back

73   Q 18. Back

74   Q 60. Back

75   Q 247. Back

76   Q 248. Back

77   Q 118. Back

78   Q 267. Back

79   Q 117. Back

80   Q 118. Back

81   Q 267. Back

82   IbidBack

83   Q 268. Back

84   Ev., p. 121. Back

85   Ev., p. 164. Back

86   Ev., p. 3, para 4.7. Back

87   Ev. p. 121. Back

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