The Government's pension reform

Written evidence submitted by the Union of Shop, Distributive and Allied Workers

Usdaw (the Union of Shop, Distributive and Allied Workers) is the UK’s fourth largest trade union, with over 398,000 members.

Most Usdaw members work in the retail sector, but the Union also has many members in transport, distribution, food manufacturing, chemicals and other trades.

Usdaw welcomes the opportunity to respond to the Work & Pensions Committee’s call for evidence on the Government’s pension reforms.

The proposed accelerated increase in the State Pension Age and its impact on women

We are greatly concerned that the effects of the government’s proposed changes to the timetable for the increase in state pension age will be felt most hard by women.

The new Pension Bill will increase the SPA by up to 2 years extra for women now aged 56 and 57. These women thought they were just 6 or 7 years off retirement but now find that the goalpost has been moved by an additional 1 or 2 years. There are around 500,000 women nationally in this position, including almost 10,000 women members of Usdaw.

Evidence suggests that, as a minimum, women need more than 10 years' notice if they are to have time to adjust their retirement plans in response to a policy change like this. This is because women tend to drop out of the labour market at a younger age than men. Previous governments have recognised this. For example, the legislation to increase women’s state pension age from 60 to 65 between 2010 and 2020 was passed in 1995, which gave women at least 15 years to adjust their retirement plans.

The worst affected women, born between 6 December 1953 and 5 October 1954 will see their SPA increase by 18 months or more. Around 4,200 women members of Usdaw are in this group.

Women’s retirement savings are typically far lower than those for men. The average pension savings of a 56 year old woman is £9,000, compared with men’s average savings of £52,000.

Usdaw’s members will be particularly badly hit by the changes. As lower earners they often do not have any pension entitlements other than their state pension. Most of our members who are now in their mid-fifties left school at 15 or 16 and have already worked for 40 years, often as well as bringing up children and caring for elderly relatives.

Many were part-time workers whilst bringing up children and will have been excluded from occupational pensions for most of their working lives. Unlike many women who are better off, they therefore cannot afford to retire until they receive their state pension.

Many Usdaw members also work in manual jobs such as checkout operators, shelf stackers or cleaners. Older workers find these jobs harder to perform, and the speed and output targets increasingly imposed by companies make work even more difficult and stressful for staff in their sixties.

Many women are simply unaware of the changes, and have no idea of the effect that they will have on them. Very little specific information on the proposals is available on government websites and official information still shows the current SPAs.

Those of our members who have found out are extremely concerned and angry…

Diane: "As a woman in my 50's, I now have to work an extra 5 years more than women who have just retired, this is bad enough but to hear that in a few years time this will be at least 66 years.

I suffer from Arthritis now, and can't wait to retire, along with a lot of other people. The only argument I have heard from people is that we live longer and are healthier so we should work longer! Well sorry for listening to doctors who told me to stop smoking and drinking and get fit and healthy, so we can work till we drop.

I think it is about time we did a bit more to show the politicians that we ARE AGAINST this rise in the retirement age!!!!"

Barbara: "To reach retirement it feels like a mountain I have to climb which keeps getting higher. This Government have robbed me of 2 years of freedom. And of £10,000 of pension which I have been working for since I was 15. It is so unfair on our class of people. We have worked hard all our lives and never asked for anything. Just as we start to see light at the end of the tunnel it is snatched away."

Usdaw advocates a smaller acceleration of the timetable for both men and women from 65 to 66 between 2020 and 2022. This would affect 1.2 million fewer people than the current new plans, and affects about an equal number of men and women, while currently 300,000 more women than men are affected. This would still deliver £20bn (2/3rd of what is planned) of savings for the Government, but no-one would have an increase in state pension age of more than a year.

The impact of the change to using the Consumer Price Index to uprate workplace pensions

Usdaw is opposed to the Government’s proposal to use CPI rather than RPI as the measure of price inflation for the purpose of statutory minimum revaluation of and indexation of benefits accrued in private sector occupational pension schemes.

The DWP’s own impact assessment estimates that a switch to CPI for private sector pension schemes will reduce the value of members’ pensions by £76.6 billion over 15 years.

Research undertaken by the Pensions Policy Institute and published in a report entitled How could CPI indexation affect pension income? estimates that that the impact of switching to CPI on a worker who leaves an occupational scheme at age 40 would be to reduce his pension at age 65 by 20%.

We are concerned that against a backdrop of pensioners having insufficient incomes in retirement to ensure a decent standard of living the proposed switch from RPI to CPI will exacerbate pensioner poverty in the UK.

The public’s confidence in workplace pension schemes – still not fully recovered from the scandals of the 1990s – will only be further undermined by changes that will arbitrarily reduce the value of their occupational pensions.

Finally, we would question the legality of a proposed statutory override which would allow private sector occupational pension schemes to modify rules which hitherto stipulated the use of RPI. It is our view that this would contravene the 1995 Pensions Act, which prohibits any change to a pension scheme which reduces or devalues an accrued entitlement.

The plans for auto-enrolment into workplace pension schemes and the establishment of the National Employment Savings Trust

Usdaw supports auto-enrolment and we have first hand evidence of its success at Tesco, where 162,000 of our members are employed and where auto-enrolment into the pension scheme has seen take-up levels of over 60% despite the relatively low-paid and transient nature of retail work.

Ho wever, we were very disappointed by the Government’s proposal announced in October to increase the amount of money people will have to earn before they qualify to be automatically enrolled into a workplace pension scheme.

Our view is that the proposed increase to the threshold from £5,030 to £7,475 a year unfairly targets the very group of workers least-likely to have any pension provision, low-paid part-time workers, many of who will be women working in retail.

According to the Government's own figures, the proposal will potentially exclude an additional million workers from auto-enrolment.

Also, t he linking of the auto-enrolment threshold to the income tax threshold could also make the situation worse if the Government raise s the basic tax allowance further.

Usdaw would like to see the Government stand by the original settlement reached under the previous Labour Government , which already had the support of Trade Unions, employers groups, political parties and the pensions industry.

February 2011