Select Committee on Work and Pensions Appendices to the Minutes of Evidence


Memorandum submitted by the Women's Budget Group (PC 01)

  1.  Women are poorer than men in retirement because of the employment constraints posed by the essential demands of family care during their prime years. Older women have a median income which is less than 60 per cent of older men's and gender inequality of income in later life has been increasing rather than diminishing. Only a minority of older women have any private pension and very few are able to accumulate a substantial amount of such pension income. Gender equality in the ability to accumulate private pensions will not, on present trends, be achieved in the foreseeable future. It is therefore vital to women's financial security in later life that the basic state pension be set at a level sufficient to live on now, and also indexed to national income.

  2.  Insofar as the Pension Credit proposal represents an alternative to raising the basic pension, it will be detrimental to women, consigning the majority to dependence on means testing. It has been suggested that the Pension Credit will draw half the older population into means testing and it is likely that lone older women will be over-represented in the claimant half.

  3.  The proposed Pension Credit raises a number of other concerns:

    (a)  Low take up. In spite of the government's campaign, improvement in the take up of MIG has been limited, leaving an estimated 400,000 pensioners on extremely low incomes. The persistence of low take up of the MIG augurs ill for take up of the Pension Credits.

    (b)  Poverty trap disincentives. Although Pension Credits would reduce the severity of the current poverty trap arising from the low level of the basic pension, a trap will remain at the upper limit of Credit eligibility, with adverse consequences in terms of unfairness to those who saved and disincentives to save for those of working age. Indeed the Pension Provision Group has pointed out that Pension Credits could extend the disincentive to even more (although different) individuals.

    (c)  Women with a partial basic pension. A particular problem with the Pension Credit applies to women, since those with less than a full basic pension (mainly women) will not benefit from a Pension Credit for that part of their income between their basic pension amount and the full amount.

    (d)  Couples where each has a basic pension. Similarly, couples where both partners have a basic pension in their own right will lose out, since the Pension Credit for couples is based on the assumption of a wife having a category B pension at 60 per cent of the full rate. This represents a return to the pre-1978 situation, where wives were effectively discouraged from paying the full NI contribution towards their own basic pension.

    (e)  Increasing complexity. The Pension Credit is likely to give rise to complex interactions with Housing Benefit and Council Tax Benefit, creating further difficulties for potential claimants in understanding an already over-complex system.

    (f)  Perpetuating gender inequality in households. Because Pension Credits will be a means-tested benefit, the unit of assessment is of great importance. Family-based assessment introduces well-known problems where there are women in couples whose savings may not be rewarded. As Pension Credits draw a growing proportion of households into means-testing, resources will increasingly be routed through one person in couples, and that person is more likely to be the man. This will have regrettable consequences for fairness and equity within households.

  4.  I would like to emphasise that means testing (with or without the Pensions Credit taper), is no substitute for an adequate basic pension as it does nothing to encourage saving. Women are increasingly entitled to the full basic pension, due to HRP, so that most women, like most men, will potentially have a secure platform on which to build additional pensions and savings. The positive incentive effects of this development are lost if the basic pension is allowed to decline relative to earnings.

Dr Jay Ginn

Sociology Department

Surrey University

11 December 2001

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