Memorandum submitted by Equal Opportunities
Commission (PC 09)
EXECUTIVE SUMMARY
— Women are the majority of pensioners,
and their median income in retirement is only 57% of men's. Only
14% of women have full entitlement to the Basic State Pension
in their own right.
— Pension Credit has improved retirement
incomes for a very large number of women pensioners, who would
otherwise be living on below poverty-level incomes.
— Pension Credit is not a long-term
solution to the problems of low incomes for women pensioners.
— Means-testing should not become the
norm for the majority of pensioners.
— A radical review of the state pension
system is required to ensure that women do not continue to pay
an unfair price in their retirement for the vital, valid and yet
unpaid contribution that they make to society through their caring
and parenting commitments.
— Increasing the level of the Basic
State Pension will be of little or no benefit to the many women
without full entitlement.
RECOMMENDATIONS
— Methods for increasing women's entitlements
to state pensions are needed. Possible options include:
— The introduction of a universal
state pension. It would be a radical, but simple, effective and
efficient way of ensuring everyone has entitlement to an acceptable
income in retirement.
— Increasing entitlement to the
basic and second state pensions could be increased through a series
of changes to qualifying criteria for the current system.
— Whilst Pension Credit is still in
place we recommend:
— Methods of automatic calculation
of entitlement to Pension Credit should be investigated, to ensure
that no one is living in poverty in retirement.
— Savings Credit entitlement calculations
should be revised to ensure those with less than full entitlement
to the Basic State Pension do not suffer 100% withdrawal rate
on their savings.
MEMORANDUM OF
EVIDENCE
1. The Equal Opportunities Commission is
the statutory organisation with responsibility for enforcing the
Sex Discrimination and Equal Pay Acts and promoting equality between
men and women generally in Great Britain. Since it was established
in 1975 the EOC has been addressing pensions inequality in both
State and occupational provision because of the pensions gap that
exists between men and women. We very much welcome this opportunity
to submit evidence to the Sub-Committee's inquiry into Pension
Credit. This response is focused around the issue of the contribution
played by Pension Credit to the incomes of current and future
pensioners.
Women's lower income in retirement means that
they are more likely to be in receipt of pension credit than men
2. Women's median income in retirement is
only 57% that of men's.[37]
This is due to much lower entitlement to both state and private
or occupational schemes. Only 14% of women are in receipt of a
full basic state pension in their own right, compared to over
90% of men. Because of women's lower income than men in their
own right they are more likely to be eligible for Pension Credit,
two thirds of the recipients of Pension Credit are women.
Women's greater longevity means that older women
are more likely to be claiming pension credit than younger retired
women
3. One half of pension credit claimants
are women aged over 70. There are two key reasons for this. The
first reason is that older pensioners become progressively drawn
into Pension Credit, as the value of their occupational and state
pensions falls, relative to Pension Credit which is indexed to
earnings. As women on average live longer than men, they are more
likely to come within the scope of the Pension Credit system at
some stage during their retirement.
4. The second reason is that women are more
likely than men to outlive their spouse or partner. Bereavement
is currently one of the main trigger points for an individual
becoming entitled to Pension Credit. Almost a half of women over
65 are widowed or divorced, rising to two thirds of women aged
80 or over. Because of their lower pension entitlements overall,
single women (including widows) are much more likely to be
in receipt of Pension Credit than single men. Sixty per cent
of Pension Credit recipients are single women, whereas only 18%
are single men.
The impact of bereavement may increase for future
widows as they may have fewer rights to their late husbands pension
than today
5. In 2008, the inheritance of SERPS entitlement
will drop to 50%. Before 2000 widows could inherit 100% of their
late husband's entitlement, and this significantly helped to improve
widows' retirement incomes.
6. The move from defined benefit (DB) to
defined contribution (DC) occupational schemes, and the increase
in personal pensions (also DC) will mean that in future, fewer
women will be eligible to receive survivor benefits. Whereas in
DB schemes survivor benefits are usually automatically provided,
in DC schemes provision of a survivor benefit will depend upon
the annuitant choosing to purchase a joint life annuity, accepting
a lower income in their own lifetime in order to make provision
for their partner. Currently only 19% of married purchasers of
annuities choose to purchase a joint life annuity. The EOC is
working with the DWP and the insurance industry to address this
issue and ensure individuals are aware of the implications of
their decision to purchase a single or joint life annuity.
7. Increasing rates of cohabitation could
also reduce the provision of survivor benefits as many schemes
do not recognise cohabitatees, and provide benefits only to married
survivors. Ensuring women have the ability and opportunity
to build up sufficient entitlement to pensions in their own right
is essential to ensure sufficient income throughout their life.
Pension credit has delivered benefits, but only
for those that have claimed
8. Pension Credit (and it's predecessor
Minimum Income Guarantee) are a very targeted form of benefit
delivery and have done a great deal to alleviate the poverty of
some of the poorest pensioners in our society, who are mainly
women. However, Pension Credit clearly fails to meet the needs
of the 20-30% who do not claim Pension Credit. Despite a great
deal of effort being made to encourage claimant rates the take
up rate has not covered all who are eligible. The complexity of
the scheme, difficulties in making a claim, lack of knowledge
or an aversion to claiming means-tested support may be contributory
factors inhibiting take-up. Those who do not claim, for whatever
reasons, could find themselves living in poverty in retirement.
Methods for moving to automatic calculation of entitlement
to Pension Credit should be investigated, for example cross-referencing
National Insurance Contribution Records with Income Tax records
to evaluate eligibility.
Those without full entitlement to the basic state
pension (BSP) suffer 100% withdrawal rates on their savings
9. The Savings Credit element is designed
to reward those who have moderate savings, beyond the level of
the basic state pension. This is so as to ensure that moderate
savings do not serve merely to reduce the amount of means tested
benefit that an individual receives, giving them no benefit for
having saved. However, the calculations for the Savings Credit
are such[38]
that any individual with less that full BSP is not rewarded for
any savings that they have made to bring their income up to the
level of the BSP. Only 14% of women are entitled to full BSP in
their own right, only rising to around 50% even when inherited
rights are taken into account. Any individual who has less than
full BSP and who has managed to make moderate private saving effectively
suffers a 100% withdrawal rate for these savings, as they serve
only to reduce the amount of guarantee credit that they receive.
The Savings Credit element should be revised to take into account
savings below the level of the Basic State Pension.
Household assessment does not address household
inequalities
10. Assessing Pension Credit on a household
basis does not always increase women's income in their own right.
Although couples can choose which partner receives the Pension
Credit, in the majority of couple households, it is claimed by
men—four times as many men with partners claim pension credit,
than women with partners.[39]
Whilst Pension Credit helps overcome household poverty, it does
not address issues of inequality within the household, and may
leave women with little independent income in their own right.
Women's retirement income in their own right needs to be increased.
11. Although Pension Credit has alleviated
poverty for many retired women it should not be regarded as the
long term solution to women's low retirement incomes. Pension
credit treats the symptoms of women's lower income in retirement,
rather than acting to address the issues at source. Although women's
income in retirement is set to improve through the increase in
women's economic activity rates, it should be remembered that
under the current systems women will still continue to receive
a lower income in retirement primarily due to the greater parenting
and caring responsibilities that they undertake. A radical
review of the state pension system is required to ensure that
women do not continue to pay an unfair price in their retirement
for the vital, valid and yet unpaid contribution that they make
to society through their caring and parenting commitments.
Means tested benefits in retirement should not
become the norm for the majority of women in retirement
12. Women should have the same ability as
men to build up sufficient income in their own right, through
state or private schemes so that they are able to lift themselves
clear of means testing. The state pension system is the only viable
route for building up pension entitlement for those not in paid
employment. Radical restructuring of the state pension system
could alleviate the need for the vast majority of the population
to claim means tested benefits in retirement, and better recognise
the caring and parenting contributions that many individuals make
to society.
13. The current state pension system gives
some protection for those absent from paid employment due to caring
or parenting reasons to enable them too accrue rights to the basic
and the second state pension. However, there are many gaps in
this protection, that lead to individuals who have always made
a positive contribution to society not receiving even a full basic
state pension in their own right.
Women's entitlement to state pensions needs to
be increased, better rewarding and valuing their caring and paring
contributions
14. The best solution for women's pensions
would be to introduce a universal state pension. It would be a
radical, but simple, effective and efficient way of ensuring everyone
has entitlement to an acceptable income in retirement. A universal
state pension would be the most effective way of ensuring that
the vital but unpaid contribution that women make raising children
or caring for older or disabled people are fully covered by the
state pension scheme. The majority of beneficiaries would be women,
as it is predominantly women who lack a full basic state pension
in their own right. It could be introduced in the near future,
providing all eligible pensioners with a basic level of retirement
income. Providing it was set at a sufficiently high level, it
could mean that Pension Credit would no longer be needed for the
majority of pensioners, and means-testing would apply to just
the small minority of pensioners who did not qualify under residence
conditions for the universal state pension.
15. In the absence of a citizen's pension,
the current system needs to be amended to give greater coverage
for patents and carers. This could be achieved through a series
of possible rule changes:
— Lowering the Lower Earnings Limit
(LEL).
— Abolishing the 25% rule.
— Adding together income from multiple
jobs for National Insurance (NI) purposes.
— Replacing Home Responsibilities Protection
(HRP) with a positive weekly credit to NI records.
— If HRP is retained, making it available
on a weekly basis and lowering the amount of time spent caring
that is necessary to qualify for it.
Taken together these rule changes would improve
women's coverage under the state pension scheme, however, there
would still be the risk of some women not being covered. Additionally
it would take a long time to build up rights, so a system such
as Pension Credit would still be needed to bring women's retirement
incomes above poverty threshold for the foreseeable future.
16. Models that are currently being proposed
by other groups to raise the level of the basic state pension
to above the level of the guarantee credit, without increasing
entitlement for parents and careers would still leave a disproportional
number of women reliant on means tested benefits on retirement
as they would not have full entitlement to this increased basic
state pension. Any increase in the level of BSP needs to be
accompanied by measures to widen eligibility.
Pension credit does not act to encourage individuals
to save more
17. The current situation with the interaction
between means tested benefits in retirement and private savings
means that advisors cannot say unequivocally that it makes sense
for every individual to save for their retirement. Those on life
long low earnings may be better off not saving and relying on
means tested benefits in retirement. Pension Credit adds another
level of complexity and confusion to a system that individuals
already struggle to interact with. A system whereby individuals
know that the pension they receive from the state would lift them
above any means tested threshold would enable the message to individuals
to be clear and simple, that it would always pay to save.
RECOMMENDATIONS
— Methods for increasing women's entitlements
to state pensions are needed. Possible options include:
— The introduction of a universal
state pension. It would be a radical, but simple, effective and
efficient way of ensuring everyone has entitlement to an acceptable
income in retirement.
— Increasing entitlement to the
basic and second state pensions could be increased through a series
of changes to qualifying criteria for the current system.
— Whilst Pension Credit is still in
place we recommend:
— Methods of automatic calculation
of entitlement to Pension Credit should be investigated, to ensure
that no one is living in poverty in retirement.
— Savings Credit entitlement calculations
should be revised to ensure those with less than full entitlement
to the Basic State Pension do not suffer 100% withdrawal rate
on their savings.
Equal Opportunities Commission
September 2004
37 Social Trends, 34. Back
38
Savings credit pays a tax free benefit of 60p/£ of income
in gap between full BSP and the Guarantee Credit level, amount
then reduces by 40p/£ of income above guarantee credit level,
taken from PPI Paper, State pension reform transition issues. Back
39
4% of Pension Credit recipients are women with partners vs. 16%
women with partners. Back
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