Pensions Bill

Written evidence from Sarah Pennells of SavvyWoman.co.uk (PB 62)

SavvyWoman.co.uk

SavvyWoman is a free to use financial information website for women, which was launched in the autumn of 2009. It covers a wide range of finance-related subjects, including pensions and retirement. The state pension section is consistently one of the most visited parts of the website.

Summary:

The aim of the Pensions Bill, to make the state pension easier to understand and fairer, is one I support.

However, in its current form, the Bill could cause financial hardship for those women who were expecting to receive a pension based on their husband’s contributions. It will also mean that women and men born the same day will receive a different level of state pension for the rest of their lives.

The government should include a transition period for women expecting a pension based on ‘derived rights’ and should consider whether women born between April 6th 1951 and April 5th 1953 could be given the option of taking the single tier pension, if it leaves them better off.

The Bill also includes scope for regular reviews of state pension age. It should ensure that these do not penalise individuals living in areas where life expectancy is low, at a time when ONS figures show that the gap between individuals’ life expectancy in these areas, compared to areas where life expectancy is at its highest, is increasing.

1. Introduction

The Pensions Bill contains a number of measures which are to be welcomed. I support the over-arching aim of the government to make the state pension system less complicated, fairer and easier to understand. However, there are a number of measures contained in the Bill, relating to the single tier pension, which I believe will penalise a number of women and which cause me concern.

2. The 'lost 700,000'

There are approximately 700,000 women who were born between April 6th 1951 and April 5th 1953 who will not receive the single tier state pension, whereas men born during this period will. I am aware that not all women will receive a higher weekly state pension from the single tier pension than they would under the current rules and that they will receive their pension at an earlier age. However, I still believe the current proposals are unsatisfactory.

2.1 Figures from the Department for Work and Pensions show that the average difference between current entitlement to a state pension and entitlement under the single tier regime is £6 a week [1] . However, for many women the figure will be considerably higher.

2.2 The Pensions Minister is on record as saying that if these women were to be treated as men - namely to receive the single tier pension at the current state pension age for men of 65, 85% would be worse off [2] . However, I do not believe that this is an entirely fair comparison.

2.3 Men's state pension age has remained at 65 for many decades, whereas the state pension age for women has been rising since 2010. The rise from 60 to 65 is not in itself unfair. I believe that state pension ages should be equalised between men and women. However, many women whose pension age is rising have not been given adequate warning of the fact.

2.4 Even though legislation was agreed in 1995 to gradually equalise the state pension ages of men and women at 65, I am regularly contacted by women in their early sixties who have only found out a year or so before they retire that they will not be receiving a state pension when they expected to. It is the lack of information about the equalisation of state pension ages, and therefore the lack of opportunity for these women to make alternative arrangements, which - I believe - means women in this age group should be treated as a special case.

2.5 Under the current plans for the single tier pension, those men and women who reach state pension age after it is introduced will be able to retire on the single tier pension (if that is the same or greater than the entitlement they have built up under the current system) or will be able to keep their entitlement under the current system if it is more than the proposed level of £144 a week in today’s money. I believe that women born between April 6th 1951 and April 5th 1953 should be given a similar choice when they reach state pension age.

2.6 It is true that these women will receive their state pension earlier than men born on the same day, but I do believe the lack of information from the DWP about the equalisation of state pension ages (and the lack of interest in the subject from much of the media until comparatively recently) means that these women should not lose out a second time because of state pension changes, however welcome the overall changes are.

3. Transitional arrangements for 'derived rights' and inherited state pension

I was pleased to see that the Pensions Bill includes measures to ensure that women who have paid the 'married women's stamp' will be able to receive a category B pension after the introduction of the single tier state pension. However, I do not believe this goes far enough. I have been contacted by a number of women who have not paid the married women's stamp, but who are due to receive a state pension worth less than 60% of the full basic state pension, and who will not reach state pension age until after April 6th 2016.

3.1 They have told me they are variously dismayed and furious that they will not now be able to receive the state pension they believed they would be entitled to. In some cases they have not been able to work - or have chosen not to work - and have not claimed state benefits. In other cases these women have acted as carers but have not been able to qualify for home responsibilities protection or carer's credits.

3.2 I understand that the state pension is designed to be a contributory pension. Nonetheless, this – contributory - state pension system has enabled women to claim a state pension based on their husband's National Insurance record, to claim one on the relevant part of their ex husband's NI record or to inherit a state pension based on their late husband's NI record, for many years.

3.3 Many women have factored this into their retirement planning and, while being able to receive a state pension based on your husband's NI contributions may seem anachronistic, it is not something that I believe should be available to women one day and disappear the next.

3.4 Instead, I echo the Pensions Select Committee’s findings that there should be a 15 year transitional arrangement so that women who have built up a state pension worth less than 60% of the basic state pension can receive a category B pension if they reach state pension age after April 6th 2016 [3] .

4. Women and poverty in retirement

4.1 There is no shortage of research showing that women are far more likely to be dependent on the state pension when they retire and that they are likely to retire on less than men. Research by Prudential [4] found that women are three times more likely than men to retire on a state pension alone (23% for women compared to 8% for men), with the state pension accounting for 43% of women’s retirement income in 2013, compared to 30% for men.

4.2 The Wealth and Assets Survey carried out by the ONS [5] shows the median private pensions wealth for men and women of all ages between 2008-10 (including those with no private pension) was £18,500 for men and £2,400 for women. Once those who have no pension wealth are excluded, the median figure is £79,000 for men and £51,200 for women.

5. Future rises in state pension age

The state pension age should reflect increases in longevity in the UK population. However, any rise in state pension age must be introduced both with a realistic timetable for people to make alternative arrangements and with a programme of relevant and targeted information that will directly reach those who will be affected. It should also ensure that changes are not introduced every few years without giving men and women any certainty about their retirement entitlement from the state.

5.1 I would also hope that the government would ensure that people who have carried out physically and mentally demanding work throughout their lives and/or who live in areas with below average life expectancy will not be unduly penalised by future rises in state pension age.

5.2 Figures from the ONS [6] covering the periods of 2004-6 and 2008-10, show that while average longevity in the UK population is increasing, the gap between the lowest and highest life expectancy at both birth and age 65 has grown. Individuals living in the London borough of Kensington and Chelsea can expect to live significantly longer than someone born in, for example, Glasgow and Clyde.

5.3 ONS data shows that between 2004-6 and 2008-10, the gap in average life expectancy of a man aged 65 living in Glasgow and Clyde compared to a man living in Kensington and Chelsea increased by 1.9 years from 8.2 to 10.1 years, while for a woman the gap increased by 2.2 years from 7.5 to 9.7 years.

5.4 At age 65, a man living in Glasgow and Clyde can expect to live for 14.3 years (to age 79.3), compared to 24.4 years in Kensington and Chelsea (to age 89.4). At age 65, a woman living in Glasgow and Clyde can expect to live for another 17.8 years (to age 82.8) compared to 27.5 years for a woman living in Kensington and Chelsea (bringing life expectancy to 92.5 years).

5.5 I do believe the introduction of the single tier pension will remove some of the worst of the complexity of the current state pension system. However, I believe that care needs to be taken to make sure that certain groups of – principally, but not exclusively women - are not unfairly penalised.

July 2013