Looks at the issues affecting state and private pension outcomes for womenJump to full report >>
Challenges facing women pension savers
Participation in the labour market and earnings from employment help determine people’s future pension incomes. Time spent in employment means individuals can build up their National Insurance record and may be able to invest some of their income in a private pension.
The number of women in work has increased over the past few decades, although the employment rate is still lower for women than for men. Women are more likely than men to spend time out of the labour market, mainly owing to caring responsibilities, and to work part-time. Additionally, female employees tend to earn less than male employees, although the pattern varies by age group.
Women tend to live longer than men, although the gap is narrowing.
The State Pension for people who reach State Pension age before 6 April 2016
When the contributory state pension was introduced in 1948, there was provision for married women to pay reduced rate National Insurance (NI) and rely on their husband’s insurance record for a pension, paid at 60 per cent of the full amount. This option was removed in 1978, when Home Responsibilities Protection was introduced to protect the State Pension entitlement for people with caring responsibilities. Further steps to improve entitlements have included measures to credit-in carers more effectively and a reduction in the number of years needed for a full basic State Pension.
Despite these changes, state pension outcomes for women have tended to lag behind changes in their social and economic position. In November 2017 the average weekly amount received of State Pension by women was 82% that of the average for men; on average women received £126.45 per week, compared to £153.99 for men.
The new State Pension
The introduction of the new State Pension for future pensioners from 6 April 2016 was expected to bring forward the date by a decade – to the 2040s - the point at which women get equivalent state pension outcomes to men. However, according to the Institute for Fiscal Studies, in the longer-term the new pension will be less generous than the current system for almost everyone, particularly those who contribute for longer, whether through paid work or caring responsibilities. This will increase the importance of private pension savings for an adequate income in retirement.
Issues relevant to women debated when the legislation was before Parliament included: the position of women born between April 1951 and 1953 who do not qualify although a man born on the same day would; the removal – with some transitional protection - of the right to derive a state pension entitlement on the basis of a spouse or civil partner’s contribution record; and the position of people with multiple jobs below the lower earnings limit (LEL).
The State Pension age
The Pensions Act 1995 provided for the State Pension age (SPA) for women to increase from 60 to 65 over the period April 2010 to 2020. The Coalition Government legislated in the Pensions Act 2011 to accelerate the latter part of this timetable, so that women’s SPA will now reach 65 in November 2018. The reason was increases in life expectancy since the timetable was last revised. It had initially intended that the equalised SPA would then rise to 66 by April 2020. However, because of concerns expressed about the impact on women born in March 1954 who would see their SPA increase by as much as two years as a result, it decided that this should happen over a longer period, with the SPA reaching 66 in October 2020.
Some women born in the 1950s argue they have been hit particularly hard, with significant changes to their SPA imposed with a lack of appropriate notification. However, the Government has said it will not revisit the 2011 Act timetable.
John Cridland’s review of the State Pension age found that the discrepancy in pension outcomes for men and women reflects different private pension outcomes. (Interim report, October 2016, p10).
Historically, the proportion of women employees in workplace pensions has been lower than that of men. This is not now the case: in 2017, almost equal proportions of men and women working full time in both the public and private sectors, have a workplace pension scheme. However, the proportion of part-time workers with a workplace pension was higher among women: in the public sector 82% of women working part time and 69% of men working part time were a scheme member, and 43% of women and 33% of men in the private sector.
To increase participation in workplace pensions, the Government has introduced duties on employers to automatically enrol workers with earnings above a set level (£10,000 in 2018/19) into a workplace pension and – unless they opt out – make minimum contributions.
The Women’s Budget Group has questioned the extent to which auto-enrolment reduce the gender gap in private pensions, given that differences in employment histories remain for mothers, bringing loss of earnings and restricting opportunities for private pension contributions. It argues that continuing disadvantage in private pensions makes the level of the new State Pension particularly important for women.
A 2016 report on ‘the under-pensioned’ by the Pensions Policy Institute found that the majority of pension income differences arose from differences in labour market characteristics, such as being more likely to work part-time. Reducing inequalities in retirement therefore would involve tackling inequalities in working-age which lie behind differences in labour-market characteristics.
In its 2017 review of auto-enrolment, the Government proposed that, from the mid-2020s and subject to consultation, pension contributions would be calculated from the first pound earned, rather than from the lower earnings limit (£6,032 in 2018/19). This would create additional pension saving and ensure that multiple jobholders qualified for employer contributions in all jobs. Those below the earnings trigger for auto-enrolment could choose to opt in and be automatically entitled to employer contribution.
Commons Briefing papers CBP-7286
Authors: Djuna Thurley; Feargal McGuinness; Richard Keen