The simultaneous pressures of longer life expectancies, squeezed budgets, overly generous, short-sighted pension agreements of yesteryear, and the financial crash of 2008 have squeezed pensions for everyone.
When Osborne used his Autumn Statement to announce raising the state pension age to 70, the message was clear: from here on out, everyone will be working longer, for less.
But none more so than women.
As it stands, all private pension schemes are based on income to some degree. Increasingly rare defined benefit schemes are calculated as a proportion of your income – either immediately preceding retirement, or as an average. Defined contribution schemes are dependent on how much you can spare. And employer contributions are usually specified as percentages of your salary.
On average, women earn less than men. And this gap is growing. According to the ONS, average earnings in full-tine employment currently stand at £556 per week for men, and £459 for women; a pay gap of 10%, up from 9.5% in 2012.
Note that those figures are for people in full-time employment. They don’t include the disproportionate number of women in part-time employment. And, important for our purposes, they don’t include the number of women who have a career gap – usually due to childcare commitments on both counts.
Generally, women live longer than men. Female babies born in 2013 are expected to live to 94, male babies to 90.7. This means that to enjoy the same quality of life, women need a larger pension pot. But due to the income disparity – whatever the reason – they are far more likely to end up with a smaller pot for a longer retirement.
State pension inequality
The income disparity affects the state pension as well. The new flat-rate pension has gone a long way to narrowing the divide between men and women – as long as you’ve made 30 years of National Insurance contributions, you get £140 a week, regardless of gender, but discrepancies remain.
For starters, the career break issue is a big one. If a woman stays at home to look after a child, she may not make it to the full 30 years of NI contributions, even if she returns to work. As a result, she will receive a reduced state pension.
And although the new Auto-Enrolment Workplace Pension scheme is laudable for ‘nudging’ people into saving for retirement, again, disproportionately more women aren’t eligible.
Eligibility for the scheme depends on being aged between 22 and state pension age and earning more than £9,440 per annum. Due to the high number of women in part-time employment, the majority of the 3 million ineligible for the scheme so far are women.
Further, when the threshold rises to £10,000 in April 2014 (in line with the income tax threshold) the DWP estimates 170,000 more individuals will become ineligible, with 120,000 of those being women.
As Josephine Cumbo wrote in the FT: “It seems perverse that a policy aimed at ameliorating poverty in retirement risks excluding those whom it would most benefit.”
Top-ups for spouses
A little-discussed aspect of the current pension system is the ‘derived benefit’ top-up for spouses. This allows someone who has taken a career break (for example) to receive a top-up on their state pension based on their partner’s National Insurance contributions.
The benefit is worth up to £22 per week – around £1,100 per year. But under the new single-tier system, to be introduced in 2016, this is to be scrapped. Predictably, this will disproportionately affect women. The government estimates 190,000 women will lose out between now and 2030 and around 100,000 men.
Steve Webb, the pensions minister, claims the move is designed to stop spouses living overseas from benefiting without having contributed to the economy.
In the current climate, the need to cut down the pension bill wherever possible is clear. But it’s hard to shake the feeling that the derived benefit top-up is exactly the sort of measure one would introduce to smooth out the discrepancy between men and women’s retirement income.
It’s a man’s world
It seems that every day more news comes that makes retirement something to be dreaded rather than looked forward to, and that counts for everyone.
At a time when living standards are falling for the first time in generations, the need to put so much away for retirement is forbidding at best, impossible at worst. According to Fidelity’s retirement calculator – taking state pension income into account – a basic standard of living requires a pension pot worth hundreds of thousands.
So the introduction of the Auto-Enrolment scheme is laudable, but more needs to be done to help women. When everyone’s pension pot has to stretch further, why are women – whose smaller pots have to stretch the furthest – left to fend for themselves? And why is the only scheme that helps them being scrapped?
Carolyn Saunders offered this insight in The Guardian: “certain historic features of the UK’s state pension system, which was originally designed around the male breadwinner model, have disadvantaged women.”
Why, at a time of massive upheaval, the system is not being reformed to reflect reality is a mystery.