Pensions reform: what does it mean for women?

More and better information on pensions is needed so women do not miss out on their entitlements or worry unnecessarily, says a pensions expert.

Dr Debora Price from the Institute of Gerontology at King’s College London says even she is unclear what her pension will be when she retires. She adds that carers are not claiming state pension credits because of poor information. This includes working grandparents – most of them women – who look after their grandchildren and may be missing out on credits into their state pension because they don’t know about them. And she says poor information and confusion has left many worried about the government’s new flat-rate state pensions system, which comes in next year, even though most women should be better off as a result.

Historically, women have lost out on state pensions because they have taken career breaks to look after children and have failed to pay enough National Insurance contributions to qualify for the full amount. In some cases, women’s entitlement has been miniscule. According to Professor John Macnicol, author of Neoliberalising Old Age, only a minority of women reaching state pension age have been entitled to a full basic state pension: the proportion has slowly risen, but was still only 46 per cent in 2013, in contrast to 80 per cent in the case of men.

In 2010, the government introduced a buy-back system that allows some people who return to the workplace after taking a career break to buy back NI contributions so that they can qualify for the full state pension. The new flat-rate pensions system aims to simplify a system which particularly affects women since they outnumber men in the pensioner population by almost two to one.

Professor Macnicol says many women will be affected by the minimum NI contribution requirement for the full state pension being raised from 30 years to 35. This is in response to a rise in the age at which people can retire, something Professor Macnicol believes will create greater poverty among the elderly before they get to retirement.

Debora Price’s focus is on pensions and she says many aspects of the new system are very good for women, when taken as a whole. However, she adds that there is a lot of confusion about the detail because previous systems were so complicated.

She says: “The big idea is that before this, we had two state systems, a basic system and another system on top – which has been known as lots of different things in the past, including SERPS, but is now generally called the Additional State Pension. And then we also had a means tested system for those people for whom the basic system and the top-up was not enough even for a very basic standard of living. Also, some people paid lower National Insurance contributions and opted out of the second state system into an employer scheme instead, and so they got or get a part of their pension from their employer instead of the state second pension.”

New system
Many of those who were eligible for the means tested top-up were women, but a quarter to a third of those entitled didn’t claim their top-up and lived on incomes below poverty levels. Under the new system, the two state systems will be rolled into one and that it is paid at a high enough level that anyone who gets it in full won’t need a top-up from means testing. In addition, people will be stopped from opting out and there are credits built into the system if you care for young children or adults, or are unemployed or sick. Price says she hopes most people will be entitled to the full amount and those who would previously have been below the poverty line or not had much income in their own right, including many low paid women and women who took a career break, will be better off.

She adds that women who can get to 35 years of NI contributions over a working life will get the full state pension and for each year that they get credited or pay NI, they will earn themselves 1/35th of the full state pension, until they have 35/35ths.

However, Price says the method of delivery of the new pension is so complex that most people will not know what they are getting and, in addition to winners, there will be losers because the government anticipates the system being “cost neutral”. The losers are likely to include people who contracted out of the state pension – paying lower National Insurance contributions as a result – and joined a private scheme. It is hoped that employers of public sector workers who opted out will make up the difference, says Price, but she agrees information has been confusing and created anxiety. She adds that those who face deductions in the basic rate due to having contracted out can build more state pension and still get their employer pension top-up. However, those people who haven’t got long before they retire will not have time to build more state pension. Other losers include lower earners who used to get a boost to their State Second Pension. These are likely to be women. They will now have to pay higher National Insurance and not get a boost.

Price says that, on the whole, women should be winners. She says: “Those who are younger in the workforce are the most likely to be paying national insurance contributions that over time will exceed 35 years which is the maximum for calculating state pension so the additional contributions do not gain them anything. I am pretty confident that the people who are more likely to accrue more than 35 years’ worth of NI contributions are men. My instinct is that most of the cross-subsidy will be coming from people who pay more than 35 years of NI towards people who have less, on the whole this will, I think, turn out to be from men to women, and that on the whole the balance will be that women will be better off than previously on average.”

She adds that an important factor will be how pensions are increased in the future, rather than the base rate pension, and that this is subject to political changes. For Price, the real issue is how information about pensions changes have been communicated and how complicated the system appears to the public. She says: “I am 51 and the government can’t at the moment tell me what my State Pension will be. I’m in the business and I don’t know. The ability to buy back NI contributions has been a good thing, but people have to know about it, and have to clearly understand whether it would be a good thing for them to do or not, in their particular circumstances. There is low trust in government too, which is a problem.”

She adds: “I think with this new system at least we can perhaps start to see the wood for the trees. But communication has to be better, and much clearer, and I should be able to find out at the touch of a button at any time what my state pension entitlement is, and what I should do about that. Can I increase it? Can I not? Should I?”

Pension credits
Another concern is that many women carers are not claiming state pension credits. Price says that while the Carer’s Allowance carries a credit to the state pension, you can still qualify for a State Pension credit even if you don’t get Carer’s Allowance. However, very few people know this. She adds: “You have to know to make the claim and then actually make the claim. There should be much wider public information available to Carers about this.”

Price says there is also huge anger among women born in the 1950’s who have seen their pension age extended and extended as the retirement age for women has been raised. She says: “I do feel strongly that they have been treated badly and, of course, they will get much less state pension than they were expecting.” Once again, she blames poor communication. “The communications were just appalling, and many saw their worldview and lifeplans shattered,” she says.

She is also concerned about a growing gulf between those who can afford to work and those who can’t due to tax credit cuts and rising childcare costs. She adds that childcare costs could have a knock-on impact on “Britain’s invisible army of grandparents” who look after children – most of whom are women. She says: “We need to ask if those grandparents are potentially also jeopardising their own financial positions both in earnings and pensions. Some grandparents who do childcare can claim credits into their state pensions, but mostly people don’t know they can do this.”

The rising retirement age could also lead to greater financial hardship. Professor Macnicol is concerned about the potential for growing poverty among the elderly as a result of the rising retirement age. He says they face higher unemployment, a depletion of their savings, massive reliance on means-tested benefits and more financial and personal hardship. He states: “Being forced to work later in life, when an individual’s health status does not permit it, will cause a deterioration in health; alternatively, more years of enforced, benefit-supported idleness towards the end of a life may exacerbate any mental health problems. Both of these scenarios will increase National Health Service expenditure.”

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