Women's Pensions Crisis

The gap between the amounts that men and women get paid after retirement is huge, and it's getting bigger. With younger women saving just over half the amount of their male colleagues, Mike Kielty investigates a pensions crisis in the making.

The statistics are shocking. Two thirds of pensioners living in poverty are women. According to statistics released by the Prudential in September, women receive an annual pension payment of just £12,000 a year, compared to £19,000 for men, and this gap has grown by £800 in the last year.

Even more worryingly, this gap does not narrow with the younger generation. A study by Scottish Widows has shown that younger women (those aged 18-29) have saved an average of £4,816.50 for pensions, compared to an average of more than £7,700 for men of the same age. The younger women are currently saving an average of just £49 a month, while younger men are storing away £111 a month. At the present rate of progress, the pension gap is set to get ever wider.

So what explains these statistics, and what is being done to improve the situation?

A complex problem with several causes

It has been clear for decades that women come out of the pensions system worse off than men. One obvious reason for this is that many female employees take long periods off work, while they are having children, for example.

These periods away from work mean that some women fail to provide National Insurance contributions for the minimum number of years required to get a full basic state pension. This level had been set at 39 years, but as of April 2010, it has been brought down to 30 (for both sexes). This should help more women to get to the full number of years required.

Another issue may be that some women rely on their partner or husband to provide a pension for them. This is dangerous for two main reasons. Firstly, many relationships break up and there is no guarantee that the pension will be shared. Secondly, as figures from Standard Life have shown, half of all married men buy a single-life annuity or a guaranteed income for life, which means that if they die before their female partner (not unlikely), there is no guarantee that she will receive a pension.

Women also receive lower annual pension payments because the average female life expectancy is greater than the male equivalent, so that even if they have the same total amount of pension, the annuity rate will be lower because providers expect them to live longer.

The other major problem may be a lack of understanding about the best pension deals on offer. The Scottish Widows study showed that 40% of young women do not even know what a pension is. The figure for men is slightly better (although still surprisingly high) at 25%. Female savers in general are more likely than men to perceive pensions as “risky”.

So, there is a problem about education and communicating the best pension solutions. 

Donna Werbner goes out to get your two pence on whether the State Pension is enough to live on.

What’s being done?

The coalition government is offering some genuinely radical proposals for pension reform, which should make the pensions system much simpler to use and understand. But whether it will improve the lot of women is another matter.

One idea that is being put forward is for men and women to be paid a universal state pension set at a certain level, and for all the means-tested state pensions to be phased out.

We have not seen the detail of this proposal yet, but government ministers have said that the initial payment from this universal payment would be £140 a week.

There is a great deal of uncertainty about this reform, as the proposals have not been outlined in detail yet. However, it is possible that the plan could help women. If the qualification criteria for this new pension is not based on NI contributions (and it still could be), then it may help women who have had long career breaks and therefore not built up enough years for the full basic state pension.

It also could help them by doing away with the earnings-related State Second Pension (S2P), which tended to be less generous to women because they were more likely to be self-employed or work part-time.

Another new pension plan that should help women is the proposal to “auto-enrol” employees into company pensions from 2012 onwards.  This has actually come in as a result of legislation by the previous government. Workers will still have the right to opt out of the company pension scheme.

The pensions minister, Steve Webb, believes that this scheme should get around three million more women saving for their pensions. These workplace pensions would go on top of their state pensions, hopefully improving their quality of life in retirement.

Raising the state pension age

In one respect, however, the government plans may hinder women’s chances of decent pensions. George Osborne announced in the Comprehensive Spending Review that the state pension age will rise from 65 in 2018 to 66 in 2020. This marks a huge change for women’s pension prospects over the past few years.

British women born before 6 April 1950 were entitled to a state pension when they reached 60. Under reforms brought in by previous governments, women born after 6 April 1955 have a state pension age of 65. The pension age for the group born in between these dates is based on a sliding scale.

Now, women born in 1954, say, will only start getting their pension when they are 66, six years of age later than women born in 1950. This is clearly a serious loss of earnings, although it should be seen in the context of men and women’s life expectancy rising substantially since the pension system was first developed, earlier in the twentieth century.

Indeed, the rise to 66 could be seen as an example of gender equality in action (the pension age is going up for men as well, after all), but that has not stopped some commentators from being outraged.

What practical steps can be taken by women in the short term?

Without precise details about the government’s reforms, it is difficult to be sure the best way forward for women looking to save for the future. But here are some key steps that should work:

• If you are not sure about the best way forward for you, get some pensions advice. This can be provided for free by The Pensions Advisory Service. This service has a state pension age calculator, which can let you know how much you will receive in your state pension. Aviva also provides a pensions calculator for your pensions.
• Keep up your NI contributions, as (at present) you need to get to 30 years of contributions in order to be eligible for a state pension. You can also buy back years of NI contributions that you have missed. You normally need to pay back a missed year of contributions within six years, although this has been extended to 12 years for people retiring between April 2008 and April 2015.
• Explore the best options for a company pension. If you are in the younger age group, don’t put off building up your pension. The money that you put into a pension when you are younger produces much greater returns than the money you put in when you are older, so delaying the decision to pay into your pension can have a disastrous effect on your retirement income.

Tell us about your pension

Are you worried about the future? Should government be doing more to close the gap between men and women’s pensions?

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