Pensions Briefing
by National Assembly of Women

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do MPs care about women’s pensions?
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Retired women in the UK get a very poor deal and vast numbers are left to cope on tiny incomes for the last period of their lives. Present policies and pensions debates fail to address the fundamental causes and are based on myths and inaccuracies which limit the proposals presented to Parliament. The women of this country deserve better and this leaflet seeks to explain how and why MPs should take a more urgent interest in the plight of older women.
current problems 
The Beveridge system treated married couples as one unit and married women were expected to depend upon their husbands’ entitlement to benefits and pensions. Parts of that philosophy remain in today’s system and do not fit with current family circumstances. For example, the divorce rate means that spouses can no longer expect lifelong sharing of income. 
More and more women are now in paid employment but this is often part-time, erratic and very low paid. One thing that has not changed since Beveridge is that women take the main responsibility for the care of families and this inhibits their earnings potential and their pension prospects.

why women are the poorest pensioners 

Just over 10 million pensioners live in the UK and 64 per cent of these are women; because women on average live longer than men, they form an even larger proportion of pensioners aged 75 and over where low incomes are concentrated. Even at the beginning of retirement women get a raw deal compared with men. Figures published by the DSS last year for recently retired people (men aged 65 and women aged 60) showed average male State pensions of £86.36 per week compared with female pensions of £49.20 per week. Much more needs to be done to produce a fairer pensions system which gives women a reasonable prospect of a decent pension. To tackle this properly the causes of older women’s poverty need to be appreciated. 

Women earn less than men – equal pay legislation has not yet brought parity – and this difference in income becomes even greater in old age. For example, even when women workers have access to occupational pension schemes, their lower wages will produce lower pension entitlement. At any time there may be as many as two million women in regular employment who do not earn enough to pay National Insurance contributions towards their State pension entitlement. Indeed, the State provides an incentive to employers to keep wages low: if the employee earns too little to pay National Insurance contributions, the employer is not liable to make contributions either. This is in sharp contrast to the treatment of higher paid employees (mainly men) where employers (not employees) must make contributions on total pay. 

Much is made now of the range of options for people to take out their own pensions – politicians continually give out the message of independent provision for our old age. Apart from the reality of women’s lives which consists of making very little money go a long way, even if they manage to put aside some money for pensions they may get a poorer deal than men. In some cases they will get less for their money based on the single statistic that on average women live longer than men and ignoring all other factors which predict life expectancy. Women would need to be financial magicians to produce decent pensions in these conditions. 

The most important factor determining women’s poor financial prospects in old age is the juggling of employment and family responsibilities which results in broken employment records. Despite the fact that women are now half the workforce, they are still regarded as ‘odd’ in the pensions system. If you are unemployed or sick you will have your pension rights protected by contributions credits and rightly so; if you are caring for children or frail elderly relatives you do not get automatic credits and must take a chance on what the caring will cost you ultimately in pension rights. A DSS leaflet is a good example of this pensions roulette for women ‘as a woman your work patterns may be different from a man’s so you will need to make sure any pension you choose allows for this’. The choices available are incompatible with the pattern of women’s lives. 

It also has to be said that women themselves may rely too heavily on the prospect of their partners’ pensions, usually without any information about the likely amount. In the past, the social security system expected married women to be dependent on their husbands, but women’s lives have changed and they must start to look at challenging the system to achieve adequate independent pensions which do not rely on their marital status. 

Because pensions are built up throughout our working lives, pension changes take a long time to make a real difference in retirement incomes. We therefore need to start to change the system NOW if today’s young women are to achieve genuine pensions equality. The primary argument against improving women’s pension prospects is cost. But this country can afford better pensions for women. The government’s own figures show that in the first quarter of the 21st century State pensions expenditure will fall dramatically even though the number of pensioners is expected to increase from 11 to 15 million. 

We must not allow politicians to make a virtue out of saving taxpayers’ money at the expense of decent pensions for women. The answer is not to introduce more targeting which amounts to more means testing: we have the evidence that means testing has much higher administrative costs and that pensioners will not apply for benefits which breach their privacy. Women must get behind the complexities of the pensions system which disguise the price that many have (and will) pay for the time spent caring for their families. For too many, that price is to live the last quarter of their lives without financial security and unable to afford even the small things which make life comfortable.

understanding the myths around pensions 
When new pensions arrangements are debated, the emphasis in recent times has been on the potential costs to the State of continuing with adequate State benefits. These cost calculations are based on predictions of the population up to 50 or 60 years ahead and on stereo types of retired people as chronically sick and in need of intense care services for prolonged periods. Much of this attempt to push the costs of pensions onto the individual is based on questionable data and completely ignores the inability of those with low lifetime earnings to fund an adequate retirement income. 

myth number 1 

     Over the next few decades, the number of pensioners will rise dramatically 

the reality 

It is probably true that the number of pensioners will rise in the period up to 2040. This rise in numbers is due to the baby boom in the 1960s. The “baby boomers” form a big “bulge” in the spread of the population over different ages. The bulge is accentuated by the fact that since then, fertility rates have been low. This bulge will move up through the ages and in the 2020-2060s will constitute the retired. This is a temporary phenomenon which will fade as the baby boomers disappear from the population. But the more important statistic for society is the support ratio – the number of working people available to support each pensioner. This simply cannot be forecast as a large part of what will make up the working population in say 2040 have not yet been born. The dire predictions currently being made are based on the assumption that current low fertility rates will be maintained. 
Of course, this may turn out to be the correct assumption. But past forecasts have always been wrong precisely because they could not predict what would happen to the birth rate. 

myth number 2 

The State can no longer afford to be the principal pensions provider. 

the reality 
The State is the best option in terms of achieving equality between women and men and helping those whose working lives are characterised by low earnings, employment gaps and caring responsibilities. Because the State system is pay-as-you-go, the concern is that this becomes too expensive when the retired population is large in comparison with the working population. The reverse side of this coin is that a population with a relatively high number of older people will have fewer young families with subsequent savings on healthcare and education to balance the spending on pensions. 

myth number 3

The demographic timebomb means that universal State Pensions are no longer an option. 

the reality 
The main perceived problem with State Pensions is that they operate on a pay-as-you-go principle. So today’s workers pay the pensions of today’s retired. The assumption is that this cannot work if the retired population is large in comparison with the working population. This assumption in itself is questionable. A relatively old society will by definition have few young families and the State’s savings on healthcare and education can outweigh the extra pensions spending. But the proposed solution to the perceived problem is even more problematic. The critics argue that the solution is funded pension schemes – with today’s workers reserving enough capital to fund their own retirement so removing their dependence on future generations. 
This misses the point that the key factor influencing the retirement income of future generations will be the productivity of society in their retirement. A pot of capital will not fund a pensioner’s needs if inflation erodes the capital or if stock market returns are so low that the capital becomes insignificant. Whether their pension income comes in the form of a promise from the State or a pot of capital, is a purely technical debate. It should however be noted that universal State benefits are substantially cheaper to administer then privately funded ones. 

myth number 4

Individual pension funds are best. 

the reality 
The funded pension scheme route which is now being recommended is not a guarantee that the State will save money and reduce its role in pensions. The key factor which has not been sufficiently explored is the productivity of society at the point of retirement of future pensioners. Inflation or low stock market returns will erode the capital sum saved. It thus becomes a purely technical debate as to whether pension expectations take the form of personal savings or a promise of retirement security from government. There is another saving, however, as State pensions have much lower administrative costs than personal pensions. 

myth number  5 

Increases in life expectancy mean that the rising number of pensioners will paralyse the NHS as old people block beds. 

the reality 
The increases in life expectancy over the last decade are explained almost entirely by the removal of premature deaths – for example by the eradication of smallpox. But there is a small increase in the expectation of life at older ages as older people are healthier and more active. This is mainly due to the improved living standards in their younger lives rather then better medical treatment of old age conditions, and this factor will continue into the future, making tomorrow’s elderly even more healthy than today’s. The vast majority of old people are not ill – in fact many still actively contribute to society providing childcare and voluntary services. The evidence which is available suggests that the period of ill health before death is reducing slightly rather then increasing. 

myth number  6 

Means testing is the best way to help combat poverty. 

the reality 

There is evidence that means testing has much higher administrative costs and that pensioners will not apply for benefits which breach their privacy. The government’s own research shows that despite take up campaigns starring Thora Hird, pensioners will live in poverty rather than claim benefits for a host of reasons. Pilot programmes in 1999 only managed to increase take up from a pathetic two per cent to a measly five per cent.

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challenging these myths 

People have thus been persuaded that moving from state pensions to private provision is an economic imperative rather than a political choice. It is a political choice however and Britain has chosen a route which will lead to further reductions in state pension provision in the form of personal (Stakeholder) pensions. The inevitable consequence of this will be to knowingly increase stigmatised means-testing for the few and poverty for the many. 
So we do have a political choice and wouldn’t it be interesting to see this one in a referendum? The choice is to stop pouring millions into the finance sector, to challenge the myths about what we can afford, to reverse the trends against collective social insurance and demand universal pensions without means testing. This is the only political choice for those concerned for gender and class equality. We know that the state pension is the best foundation for adequate income in retirement for women. 

Only the state can effect redistribution to those with low life-time’s earnings. Only the state can recognise and compensate women for years of unpaid caring work. Only the state can intervene to balance the institutionalised discrimination against women. Only the state can compensate for the inadequacy of occupational pension schemes as on present trends the pay gap will not close until 2036 and so women will continue to retire on lower incomes for the next century. The state pension is, therefore, an important signal of the value society places on women and we must make it one of our central demands from a second Labour term in government. The government must accept the justice of the case for the restoration of the earnings link and accept it as part of its equality programme for women. 

It could pay for this by increasing the upper earnings level on National Insurance Contributions as a start, so that higher earners who are mostly men start to pay their fair share towards pensions instead of allowing the brunt of the costs to be paid by lower earning women. 

It could also pay for it by abolishing the tax breaks on personal and occupational pensions, which disproportionately benefit the higher paid.

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priorities 

• An increase in the Basic State Pension to £90 per week 

• Pensioners sharing in the increasing living standards of the population, by restoring the earnings link 

• The abolition of the lower and upper earnings limits, so that all earnings attract NI contributions, and credits 

• Women being credited for state pension entitlement, if they are carers or on a very low income

• Reducing the tax breaks on personal and occupational pensions, to direct tax income to better state pension provision 

• Moving to residency based pension entitlement, and a tax based state pension. 

• Unisex actuarial factors in all pension provision 

• Provision of better and clearer information

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action points 

1. Write to your MP and ask if they will support our campaign for fair and decent pensions for women 

2. Write to Tony Blair and Gordon Brown to demand action on these priorities 

3. Ask your trade union to support these demands 

4. Write letters to your local newspaper 

Get more copies of this briefing and circulate it wherever you can: contact: National Assembly of Women, Belvedere, Savile Road, Hebden Bridge, West Yorkshire HX7 6ND; 01422 846 302;  email naw@belvedere.clara.net 
 

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The NAW has membership throughout Great Britain and affiliations from women's groups, Trades Union Councils, local authority equal opportunities teams, national Trade Unions, regions and branches as well as national like minded organisations.

See the National Assembly of Women web site at www.sisters.org.uk