3Communication of changes
Communications and awareness
Planning for retirement
7.Adequate notice of changes to state pension age is necessary to enable individuals to plan for retirement. This may involve decisions about work, caring commitments, the age of a partner’s retirement and saving.17 The Department told us that it aims to give people “a clearer idea of the support they will receive from the State in later life [to] help people to judge how much additional saving they will need to make”.18
8.Annex 1 details the changes to state pension age for women made by the Pensions Acts 1995 and 2011. The then Chancellor of the Exchequer announced his intention to equalise the state pension age at 65 in his 1993 Budget statement.19 The 1995 Act was given Royal Assent in July 1995 and the first increases in state pension age as a result occurred in May 2010, nearly 15 years later. In November 2010, the then Government signalled its intention to accelerate the state pension age increase to 66.20 The Pensions Act 2011, which was given Royal Assent in November 2011, legislated for increases in state pension age from July 2016,21 just under five years later. Baroness Altmann, the current Pensions Minister (the Minister) confirmed the Government intends to give at least 10 years’ notice of any further changes to state pension age.22
9.The WASPI campaign told us that the increases in the state pension age are occurring too fast and with insufficient notice. It also contended that communications by successive Governments had been insufficient to ensure that women were aware of the changes:
It is reasonable to expect the Government to take appropriate steps to communicate significant changes to women’s State Pension Age in a timely and effective way to enable them to financially re-plan for their retirement. In the case of the 1950’s women, this did not happen and as a result, this decade of women had their State Pension Age delayed - in some cases twice and by up to six years in total - without proper notice.23
We consider Government communications, media coverage of state pension age increases and evidence of awareness levels in the remainder of this section.
Box 1: Case studies
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Mrs Lena MacLeod: “At 59 I discovered by chance that I would be 65yrs and 6mths before getting my State Pension. I have 44 yrs NI. This was supposed to be introduced over a 10 year period. I am too old and tired to do my job effectively and I am keeping a young person out of work. I have already had a lot of time off work due to exhaustion and ill health but cannot afford to retire on no pension”.(A) Kate Hardcastle: “I honestly feel and believe that the jump from 60 years to 66 years has been far too severe in its time scale. If I can give an example; I have three older sisters, albeit that there is only a maximum of 18 months between us, my eldest sister received her State Pension at 60. My second sister at 62, and third sister at 63, even though she is only 18 months older than me I do not receive my State Pension until I am 66. Why do I have to wait a further 3 years when in fact I am only 18 months older? This along with the additional National Insurance I am paying I have calculated that I have lost a minimum of £60,000.00 over the 6 year wait. I look to your support and understanding of the full 83of this massive jump of 6 years that I only became fully aware of at the age of 59/60. As stated previously I have worked and contributed all of my adult life and feel aggrieved, upset and let down”.(B) |
(A) Mrs Lena MacLeod (USP0042)
(B) Kate Hardcastle (USP0169)
Government communications
10.We asked the DWP for a chronology of official communications regarding state pension age changes and for examples of those communications. These are shown in Annexes 2 and 3 respectively.
1995–2009: information on request
11.Until 2009, direct communication with people affected by increases in state pension age was very limited. Leaflets explaining the changes were available from the Benefits Agency from 1995 and accompanied any state pension forecasts that were requested.24 The Department told us that 11.5 million state pension statements have been issued on request since April 2000.25 These included the date (but until recently, not the age) at which the individual was due to reach state pension age under the legislation at that point.26 Between 2001 and 2004 the DWP ran a broad pensions education campaign which incorporated state pension age equalisation:
The pensions education campaign ran in waves and used TV and press advertising, and direct marketing. One of the press adverts in 2004 was specifically about the equalisation of State Pension age and was featured in women’s magazines and national newspaper supplements.27
12.Between 2004 and 2006, the Department issued around 16 million unprompted letters, known as Automatic Pension Forecasts, projecting state pension entitlements, including to women aged over 50.28 This forecast did not include any details of state pension age, or mention that state pension age was changing. Lin Phillips, a WASPI representative, told us:
I received [an Automatic Pension Forecast] in 2005 and it just said, “Based on today’s state pension rate, this is what you will receive when you retire”. Nowhere in that letter did it say, “You will retire on this date”.29
Information on state pension age changes was contained on the second page of one of two accompanying leaflets under the heading “what is the state pension age?”.30
13.We heard from women who thought that the Government should have been more direct in informing individuals of their changed circumstances. Ms Helen Cherry, who was born in 1954, told us:
Why would I have been seeking out information about my retirement age when I had known all my life that women retired at 60? It was an absolute.
Sally West of Age UK concurred that “people did not ask what their pension age would be because they thought they knew it”.31 This perception may have been reinforced by the absence of any state pension age increase from the Automatic Pension Forecasts.
2009–2014: personalised letters
14.Between April 2009 and March 2011, 1.2 million personalised letters were sent to women born between 6 April 1950 and 5 April 1953. These letters included the earliest date when the individual could expect to be entitled to a state pension. The women contacted were the first to be affected by changes to state pension age in the Pensions Act 1995. Paul Lewis, a financial journalist, calculated that these letters were sent, on average, one year and four months before the women turned 60.32 The distribution of letters was paused in 2011 as the Government consulted on further changes to the state pension age and the Pensions Act 2011 passed through Parliament.
15.In January and February 2012 the Department issued 1.3 million personalised letters to people born between April 1953 and April 1955.33 Women in this group were subject to a maximum increase in state pension age of 18 months as a result of the Pensions Act 2011. In addition, their state pension ages were increased by between three and five years by the Pensions Act 1995. In total, their state pension ages will be between 63 years and two months and 66 years (for those born after 5 October 1954). Paul Lewis calculated:
They were told at the age of 57 or 58 about this double effect two changes to their pension age. The letters were sent on average two years before they were 60.34
16.Mr Lewis justified using the length of time between receipt of a personalised letter and the woman’s 60th birthday as a measure of notice because for many women, the letters sent from 2012 were “the first time they were told about any change at all and certainly the first time they were written to specifically to inform them of their personal pension age”.35
17.Between October 2012 and November 2013 a further batch of personalised letters was sent to 4.5 million people born between 6 April 1955 and 5 April 1960, the remainder affected by state pension age changes in the Pensions Act 2011.36 The oldest members of this group were told at the age of around 57½ that their pension age would be 66.37
18.Anne Keen, a WASPI representative, described the Pensions Act 1995 as the “crux” of the matter:
The Government have said on numerous occasions that people have only had to wait 18 months. That is not the case. It is up to six years.38
Steve Webb made a similar point:
when we wrote to them to tell them about the changes we made in the 2011 Act, which increased pension ages by up to 18 months, for some of them it was the first time they had heard about the 1995 Act, which increased their pension age by four and a half years or something like that. We got the flak for six years of pension rise.39
Box 2. Case study
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Marilyn Byrne: “I had worked for the NHS for over 20 years, to provide for my future I contributed to a NHS pension. I took early retirement in 2009 from the NHS but I planned to continue to work on a casual basis outside the NHS until I was entitled to claim my State Pension in 2014. “To my shock and horror I received a letter from the DWP in February 2012 stating that the year I could claim a State Pension had moved to 2020. This had given me just over 2 years’ notice of a 6 year rise. I could never make up this shortfall in my finances with that very short amount of notice. “If I had known this the financial planning for my retirement would have been very different, with very different choices being made”.(A) |
(A) Marilyn Byrne (USP0032)
Recent concerns
19.We also heard evidence that many women did not receive a personalised letter.40 The DWP wrote to people at the latest address held by HM Revenue and Customs (HMRC).41 This list was inevitably inaccurate or out-of-date in some cases. Both the current and previous Pensions Minister acknowledged that some people would not have received letters.42 Steve Webb told us:
I am sure we missed people. So if someone says, “I never got a letter,” they are probably telling the truth; I don’t dispute that. We did everything we could on the 2011 Act to tell the people affected by that Act.43
Paul Lewis disagreed that the then Government took all necessary steps, suggesting that, if letters were returned, the Department should have made more effort to contact the individual concerned.44 Richard Caseby, DWP Director of Communications, cautioned that DWP analysis suggested unprompted letters are read by just one-in-three recipients.45
20.Mr Caseby said that use of online tools had been high. Since 2013, 5 million people, of whom 2.4 million were women, had used the Department’s online state pension calculator.46 WASPI, however, drew our attention to the Government Gateway website still displaying the state pension age for women as 60 in January 2016.47
Media coverage
21.Paul Lewis told us that media coverage of forthcoming state pension age changes had been very limited:
There was little mention in the press at the time. A cuttings search I did found a few references in 1995, often just a single paragraph in a longer piece and mainly on the business or finance pages of broadsheet newspapers.48
Lin Phillips concurred, telling us:
We did not have the internet and things like that in 1995. There was not much in the newspapers, only maybe a little bit in the business pages.49
22.Josephine Cumbo, the Financial Times Pensions Correspondent, used a press database to contest this evidence. She found there had more than 600 mentions of state pension age equalisation in the national broadsheet and tabloid press between 1993 and 2006, an average of just under one per week. There were 54 mentions in 1995, the year in which equalisation was legislated for. She noted:
The mentions were on the front pages, News and City sections as well as personal finance pages. Mentions could be also found in the Letters section and Comment pages as the state pension age changes were highly controversial at the time. The coverage was most concentrated in 1993–95 and again from 2005–06, when Lord Turner proposed raising the retirement age for all from 65 to 67.50
23.Richard Caseby, a Sunday Times journalist before he was DWP Director of Communications, said that coverage of state pension age changes “certainly was out there”, adding that it “was a point of conversation within the money pages”.51 Some examples of press coverage are included in Annex 4.
Survey evidence
24.A 2004 DWP survey asked working age adults about awareness of state pension age equalisation. It found that, among respondents who were aware of the reforms, television (47%) and newspapers (37%) were the main sources of information. The DWP or the Pension Service, part of the Department, were cited by just 2%.52
25.That survey gave a mixed picture of awareness levels. Almost three-quarters (73%) of female correspondents in the cohort set to be affected by equalisation were aware of it. Of those affected women, however, only 43% were aware of their own state pension age being 65 or between 60 and 65. The DWP report commented:
This low figure provides cause for concern and shows that information about the increase in SPA is not reaching the group of individuals who arguably have the greatest need to be informed.
Furthermore, awareness of own state pension age was lower in certain groups, including economically inactive women and those in routine and manual occupations.53
26.Sally West told us about some 2011 Age UK research that found that “most people had some awareness of the increase in State Pension age but there were still a fifth of women who did not know”. This minority, she said, was a concern because “people who are most reliant on their State Pension are often the people who perhaps are carers, perhaps have ill health, and perhaps don’t have the time or the ability to find out what their State Pension will be”.54
27.The DWP’s latest Attitudes to Pensions survey report, based on fieldwork in early 2012, showed that 26% of women within 10 years of state pension age had correct expectations of their pension age while 59% expected to reach state pension age earlier than they would. Just 6%, however, still expected to reach state pension age at 60.55
28.Steve Webb encapsulated the uncertainty about levels of awareness about state pension equalisation:
In theory, passing a law with 15 years’ notice ought to be absolutely fine. Of course, if people do not know you have passed the law that is the problem and that is what has happened. A minority, I think, did not know and have found out quite late. Partly they found out because of the letters we sent about the 2011 Act.56
He emphasised, however, that “it is abundantly clear that there are a set of women [ … ] who did not know. There is no question about that”. 57
Conclusion on communication and awareness
29.We will never know how many women did not know, or could not be reasonably expected to know, that their state pension age was increasing. What is apparent with hindsight is that previous governments could have done a lot better in communicating the changes. Well into this decade far too many affected women were unaware of the equalisation of state pension age at 65 legislated for in 1995. While the last and current Governments have done more to communicate state pension age changes than their predecessors, this has been too little too late for many women, especially given increases in the state pension age have been accelerated at relatively short notice. Many thousands of women justifiably feel aggrieved.
Women born in the 1950s and the labour market
30.Receiving a state pension later than expected is likely to be more keenly felt if the individual concerned is not in employment. While the employment rate of women aged 50–64 has increased markedly in recent years (from 58.9% in 2010 to 64.4% in 2015), it is considerably lower than that of men of the same age (which increased from 75.5% to 78.8% over the same period).58 There are significant regional and national variations in UK employment rates: for example in October–December 2015 the employment rate for women aged 50–64 ranged from 53.0% in Northern Ireland to 69.4% in South West England.59
31.Women born in the 1950s began their working lives in a labour market, and wider society, very different to that experienced by young women today. This was described by Mrs Margaret Barry, who was born in 1953:
When I started work at the age of 14, I expected to retire at 60. Women were expected to take low paid jobs and find a husband. That would be our pension plan. We were expected to bring up our own children and did not have the benefit of child care vouchers. We were encouraged to pay the “married women’s stamp” because there was no situation that could be foreseen where women could not rely on their husband’s contributions. [ … ] We did not expect and did not get equal pay to men for doing the same work. We were not offered places on company pension schemes … 60
Such circumstances may make it more difficult for some women to manage an unexpected additional wait for their state pension. Mrs Barry had found work in her 60s but found it very draining.61 Other women were struggling hard to find employment and cope with the requirements for receiving Jobseekers’ Allowance.62
Options for transitional arrangements
32.The WASPI campaign has requested “fair transitional arrangements” for women born after 6 April 1951 and subject to increases in their state pension age with inadequate notification.63 In oral evidence to us, Anne Keen suggested that women affected should be placed in “exactly the same position they would have been in had they been born on or before 5 April 1950”.64 This implies a reversion to the state pension age of 60 that predated the Pensions Act 1995. In renewing its call for transitional arrangements in subsequent written evidence to the Committee, however, WASPI stressed that it did not want to “undo the 1995 Act” and supported both equalisation and a sustainable state pension system that accounts for changes in longevity.65
Reverting to pre-1995 or 2011 state pension ages
33.We asked the DWP how much it would cost to allow women born in the 1950s after 6 April 1951 to take their state pension at 60. They estimated that such a measure would cost £28.6 billion in 2016–17, incorporating the cumulative costs for the years from 2010–11 which have seen increases in the state pension age for women. If retained for a further four years from 2017–18 and 2020–21, it would cost an additional £48.6 billion in total. The Department stated these figures were likely to be underestimates.66
34.The cost of reversing the accelerated increases in state pension age in the Pensions Act 2011 can be seen in the Impact Assessment accompanying the legislation. The DWP estimated its costs would gradually rise from around £300 million in 2016–17 alone to a peak of around £5 billion per year in the early 2020s as more people took their state pensions earlier than they could under the current timetable. In cumulative total over the ten years between 2016–17 and 2025–26, reversing the changes would cost around £30.6 billion in additional DWP spending. Tax and NI receipts would also be £8.3 billion lower in cumulative total over that period.67 These are not small sums of money.
35.Reverting to the state pension ages in place before the 1995 Pensions Act would be ill-targeted and prohibitively expensive policy.
Other possible options
36.A less costly alternative would be to extend the timetable for increasing state pension age. Steve Webb told us that he had lobbied within Government to do this during the passing of the Pensions Act 2011.68 The timetable could be changed in any number of ways.69 One option, recently advocated in the Daily Telegraph by pensions consultant John Ralfe, is to extend the timetable for increasing state pension age from 65 to 66 to April 2022 rather than October 2020. This would notably ameliorate some of the impact of state pension age changes on women born in 1954 who will reach state pension age 18 months later than the timetable before the Pensions Act 2011 and up to six years later than scheduled before the Pensions Act 1995. Mr Ralfe estimates this would have a total cumulative cost of £8.5 billion.70
37.A further suggestion is to maintain the qualifying age for pension credit, a means-tested benefit that incorporates a minimum guaranteed income for eligible single people and couples, on the state pension age timetable that was in place before the Pensions Act 2011. This proposal was tabled, and defeated, as an amendment to the Bill that became that Act.71 The guaranteed minimum for single people will be £155.60 in 2016–17, just below the level of the full new state pension.72 This measure would offer targeted protection for people both affected by the state pension age changes in the 2011 Act and on low incomes. An extension of means-tested support is, however, opposed by the WASPI campaign as they perceive it as penalising women with small amounts of private savings or employment income who may not therefore qualify for means-tested support.73
38.In 2011, the cost of the increasing the qualifying age for pension credit to 65 on the state pension age timetable in place before the Pensions Act 2011 was estimated to rise from £40 million in 2016–17 to a plateau at £220 million in 2019–20. The cumulative total cost in the ten years between 2016–17 and 2025–16 was estimated to be £1.9 billion,74 though the Government has since indicated this may be an underestimate.75 This would fall to around £800 million should the age of eligibility be increased to 66 by 2022.76
39.Extending the timetable for increases in the state pension age or widening eligibility for pension credit would be prohibitively expensive and could have significant unintended consequences.
Actuarially neutral early retirement.
40.We also explored enabling people to take a reduced state pension at an earlier age. Ms Pauline Clark, who was born in the 1950s, said this could be a “life-line” for people unable to work to state pension age for personal or family reasons. It would also alleviate the disruption to the plans of women who had intended to spend “quality time” in retirement with their older husbands. Alan Higham, a pensions expert, advocated this as a means providing an “entitled income today” to people subject to sharp rises in their state pension age that “would be fiscally neutral over the expected lifetimes of this group”.77
41.We calculated indicative reduced state pension payments to individuals who chose to take their pension early on an actuarially-neutral basis. In simple terms, this means weekly payments are reduced to ensure that, on average, a person receives the same amount total amount of pension over a longer time period. This option is common for workplace pensions.78 We have considered examples from age 63, state pension age for women retiring in April 2016, using the reduction formula used for MPs’ pensions.79
Box 3. Actuarially neutral early retirement examples
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Example A: 9 months early A woman born on 6 January 1955 is scheduled to reach state pension age on 6 January 2021, aged 66. If she chose to take her state pension 9 months earlier on 6 April 2020:
Example B: 18 months early A woman born on 6 January 1954 would have reached state pension age under the Pensions Act 1995 of 63 years and 9 months on 6 November 2017. Under the Pensions Act 2011, she is scheduled to reach state pension age 18 months later on 6 May 2019. If she chose to take her state pension at the earlier date:
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(A) Someone who had 35 years of NI contributions and had been contracted-out throughout would be entitled to this rate in 2016–17.
42.The actuarial adjustment would aim to make aggregate pension costs neutral over the lifetimes of the recipients. This process would be uncertain. The Government could not be certain what proportion of women eligible would take up the option. There would be unpredictable and currently unbudgeted up-front costs.
43.If some women over state pension age on a reduced state pension had total income below the guaranteed minimum and claimed pension credit, there would be some ongoing costs unless eligibility for that means-tested benefit was adjusted. Income tax and NI revenues would be reduced if women chose to take their state pension rather than work, though costs of working age benefit payments such as Jobseeker’s Allowance would fall. There would also be some costs in administering the scheme. Projections of additional costs could potentially be incorporated into reduction factors to ensure fiscal neutrality.
44.Enabling early access to a state pension would add some further complexity to the system. This could, however, be time-limited and would occur at a time of transition when only a small minority of new women state pensioners will receive the full and simple flat rate pension, regardless of this change.80 There is established precedent for different state pension ages in practice through deferral and even the option to “un-retire”.81
45.We are long past the stage where an ideal outcome to the necessary process of equalising and increasing the state pension age could be achieved. We are aware both that the Government is operating under severe fiscal constraint and that the original rationale for changes to state pension age was to ensure the fiscal sustainability of the system. The Government has maintained that it is unwilling to devote additional resources to providing transitional arrangements for women affected by the state pension age changes. We have borne this in mind in our assessment of the options available. We recommend that, if the Government is subsequently able to allocate further funding, it should commission an independent assessment of the merits of the following options:
- slowing the increase in the state pension age to 66;
- revising the timetable for increases in the state pension age to reach 65 by April 2019 and 66 by April 2021;
- retaining the Pensions Act 1995 timetable for increases in the qualifying age for pension credit; and
- a transitional pension benefit.
46.We are interested in an idea that was proposed of permitting early retirement, from a specified age and for a defined cohort of women, on an actuarially neutral basis. This arrangement, which features in some defined benefit occupational pension schemes, would permit women in that specified age group to choose to take a state pension sooner than scheduled in return for lower weekly payments for the duration of their retirements. The actuarial reduction factor used should ensure that, on average, over the lifetimes of the pensioners concerned, there would be no additional pension costs to the exchequer.
47.There are several questions which would need to be addressed before such an idea could be progressed. The details and limits of eligibility, and the rationale for this relative to those earlier or later, would need to be determined, including the position of men at 65. It would bring forward some public spending, as an unknown number of women would take their state pension early. This would increase public sector net borrowing in the short term in return for a longer term reduction. The total fiscal impact would not be known until all the relevant pensions ceased to be paid. This factor, added to the unknown take-up rate, would add to budgeting uncertainty. The scheme would also need to be properly administered, which has cost implications. Any changes would need to be assessed for their wider impact on tax and benefits. It may be that any increased costs to the public purse could be incorporated in the factors used to reduce weekly pensions to make the policy more likely to be fiscally neutral in the long term.
48.As this was not the focus of our inquiry the committee has not taken much evidence on this idea. We intend to in the coming weeks. It is, however, an interesting option and one the Government should explore.
19 HC Deb, 30 November 1993, Col. 929
20 DWP, A sustainable State Pension: when the State Pension age will increase to 66, Cm 7956, November 2010
21 The first group affected, women born between 6 April 1953 and 5 May 1953, are scheduled to reach pension age on 6 July 2016.
24 DWP (USP0162). The Benefits Agency was an executive agency of the Department for Social Security, the predecessor Department of the DWP.
40 For example, Q38 (Paul Lewis); Mrs Susan Bissmire (USP0090); Victoria van Cleak (USP0037); Ms Linda Tomlinson (USP0062)
52 DWP Research Report No. 221, Public awareness of state pension age equalisation, 2004, Table 2.4
53 DWP Research Report No. 221, Public awareness of state pension age equalisation, 2004, para 2.2.2
54 Q37 (Sally West). Written evidence by WASPI (USP0142) contains references and links to survey data from yet more sources.
55 DWP Research Report No. 813, Attitudes to Pensions: The 2012 survey, 2012
59 Office for National Statistics, Regional labour market statistics: X01 Regional employment by age (experimental, non-seasonally adjusted figures)
67 DWP, Pensions Act 2011 Impact Assessment A: State Pension Age, tables 3 and 4. Costings are in 2011–12 prices.
69 An alternative option was costed in response to a Parliamentary Question, HL Deb 9 March 2011, col. WA415
70 The Daily Telegraph, 22 January 2016, 500,000 women deserve a better state pension deal, by John Ralfe
71 PBC Deb, 7 July 2011, c142-5
72 HM Treasury, Spending Review and Autumn Statement 2015, Cm9162, November 2015, para 1.135
74 PBC Deb, 7 July 2011, c142-5
78 For example, in its Occupational Pension Schemes Survey Annual Report 2011, the Office for National Statistics noted: “In 2011, a pension on early retirement was available for 98 per cent of active members of private sector defined benefit schemes. There were variations in levels of benefits offered, which might depend on whether early retirement is on the member’s own initiative or as a result of the employer asking the employee to take early retirement, as well as on the specific options available in each scheme.”
79 This works out as a reduction of around 5.2% per year taken early. This is typical of defined benefit occupational pensions.
80 DWP, Impact of New State Pension (nSP) on an Individual’s Pension Entitlement - Longer Term Effects of nSP, January 2016, fig 5
© Parliamentary copyright 2015
Prepared 15 March 2016