Still waiting for something better

The government has made much of how its new Pensions White Paper will bring “fairness” to women in retirement. But in fact, its attitude to those who spend time caring, or combine caring with part-time work, is deeply ambivalent.
While it is improving the position for state pensions, the new system of personal accounts does nothing to help. Women do considerably worse out of all the UK’s different pension systems than men.
Only 30pc of women reaching state pension age are entitled to a full basic state pension at present. Retired men on average have between £50 a week and £100 a week more private pension income than women, leaving women in retirement with a median income of just 57pc of men’s.
As the regulatory impact assessment published alongside the White Paper explains: “Currently, women are less likely to work than men... and more likely to work part time [43.4pc of women as against 11.5pc of men]. Women’s earnings are also likely to be lower than men’s [£10.84 average gross hourly wage compared with £13.78 for men].
“They are much more likely than men to take time out of the labour market to care for children and people with sickness and disabilities, and are also likely to spend more hours caring each week and to care for longer periods than men, which limits their opportunities to work full time, or often even part-time, in the labour market. Caring can have a critical impact on women’s economic position and consequent prosperity in retirement.”
A pensions reform cannot change this social framework, but it can alleviate the effects on people in retirement or at the very least not make them worse.
As the Equal Opportunities Commission (EOC) puts it: “A pension system that is fair to women, will be fair to everyone”.
In the Pensions White Paper, both prime minister Tony Blair and work and pensions secretary John Hutton claimed the new proposals would be “fair” to women and carers.
The EOC’s initial response to the White Paper was guardedly optimistic.
“Addressing the scandal of women’s pensions is at the heart of today’s White Paper,” said EOC chairman Jenny Watson. “These proposals are a welcome step towards putting inequalities right, but the devil must lie in the detail.”
The essential issue is how gaps in employment and periods of low-paid part-time employment while someone is caring for children or, increasingly, for their elderly relatives are treated for pension purposes. This is not just an issue for young women; a quarter of all women aged between 45 and 64 are carers.

The EOC’s first principle is that there should be a “common entitlement to the basic state pension” recognising the value of each person’s contribution, whether through paid work or caring for others.

Public opinion, the DWP accepts, is in favour of this – one recent survey found almost four out of five people agreed that carers of sick or disabled relatives “should get the same amount of state pension as someone who had worked all their lives”.

So the proposals are to shorten the contribution period required for a full state pension, and to make the system of credits for caring more flexible and in some ways more generous.

The DWP estimate is that in 2010, when the reforms come in, 70pc of women reaching state pension age could be entitled to a full basic pension, and 90pc by 2025. One trade-off, though, is that while the current rather inflexible system of “home responsibilities’ protection” covers women with children under 16, the new rules only cover those whose children are under 12.

But Debbie Price, a lecturer in the social policy of ageing at King’s College London, says: “A cheap or free child-care infrastructure does not exist for children aged 12-16, many of whom will still require supervision. Barriers to full time employment are very high, particularly for lone mothers.”

By the time the state basic pension is indexed to earnings in 2012 or 2015, it will be worth only 13pc or 14pc of national average earnings, so the level of the state second pension (S2P) will be crucial. The plan is that S2P will be turned into a flat-rate top-up to the basic pension, by around 2030.

It will increase in line with earnings while it builds up, but in retirement will be linked only to prices. So its value will fall gradually the longer someone lives in retirement.

Though there will be more help with credits, the relaxation of the qualifying rules is not carried through here – it will still take a 49 years to accrue a full S2P.

It is the new heavy reliance on private savings, however, that means that inequalities in retirement will persist. With the new personal accounts, there is to be no help during periods of caring and many of those who combine caring with part-time work will receive nothing from their employers. Fewer women than men save for retirement, and they save much less.

“It is a symptom of the earnings imbalance that is often overlooked,” says Saran Allott-Davey, an independent financial adviser working with Axa Avenue, a “financial social experiment” based in Brighton and sponsored by insurance giant Axa.

“Unless women can make up the difference, they may find that they have to rely on their partners for extra funds – an option that won’t be open to everyone.”

In addition, the evidence is that the financial stresses of bringing up a family affect women’s saving for retirement far more than men.

Half of all women who are saving for retirement stop when children enter the frame, while the figure for men is virtually unchanged, according to EOC figures. As with all defined-contribution arrangements, such gaps in saving will heavily affect the pensions from personal accounts, though the White Paper gives no help in estimating how much.

Figures are presented on the basis of a “full” working life of 40 years or more. Indeed, one estimate for the benefit accruing for a “low earner” assumes an extraordinarily long 52 years of saving. That assumes some persistence, if not perspicacity, since all those years of payment appear to be rewarded by no more than £10 a week extra in pension!

Under “auto-enrolment”, the government expects only another two-three million women to begin saving into personal accounts or join their employers’ pension schemes, out of a total of 5-8 million people. Several million will be excluded from personal accounts with an employer contribution attached, it appears, because their earnings will be below the £5000 eligibility threshold.

Youngsters under the age of 22, another excluded group, will be able to opt-in and activate the employer’s contribution, but the part-time women workers who make up most of those below the £5000 threshold will not.

Price fears this could lead to pressure from employers.

“Sustaining a limit of about £5000 gives employers substantial financial incentives to keep the wages of part-time workers low, and restrict the hours of work of part-timers so as to exclude them from pension schemes,” she points out.