Women and pensions

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 trade union Prospect estimates that in 2016/17 there was a 39.5% gender pension gap’ (defined as the % difference in average gross pension income between men and women in receipt of the State Pension).

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 February 2018, the average weekly amount received of State Pension by women was 82% that of the average for men. For recipients of the new State Pension, the difference is small: women’s average amounts under the new system were 95% of those 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 would 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.

Private pensions

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 introduction of auto-enrolment from 2012 has reduced the proportion of female employees with no pension provision – from 50% in 2013 to 29% in 2017. The proportion of male employees with no pension provision fell from 51% to 25% over the same period.  

The Wealth and Assets Survey not only indicates that younger women are saving more than before in absolute terms, but also indicates that the gap between the private pension wealth of women and men within the age groups closest to retirement is shrinking over time. Among 45- to 54-year olds with private pension wealth for example, the median held by women in 2016-2018 was £72,000 and the median for men was £100,000, a difference of 28% – which is 14 percentage points lower than eight years previously. The difference has also fallen among 55- to 64-year olds (from 51% to 40%) over the same period.

Although auto-enrolment has been widely hailed as a success, there is also general acceptance that contribution rates will need to increase if people are to have an adequate income in retirement. However, addressing this is not straightforward as there is a risk that low earners faced with higher contributions may opt out altogether.

Furthermore, women tend to have longer retirements than men, so their generally smaller pension pots may need to last for longer. Whether they do so will depend on the size of the pot they have built up, but also on the decisions they make in retirement.

The pension freedoms introduced in 2015 transferred significant additional responsibility for these decisions to savers. Evidence so far is that too many people are taking the path of least resistance with their existing provider, often unaware of where their money is invested or what charges apply. (FCA, Retirement outcomes view: final report MS 16/3, June 2018).

And aspects of the policy design mean low earners get limited benefit from auto-enrolment. Campaigners have been calling on the Government to address two issues in particular: the position of those earning below the £10,000 earnings trigger for auto-enrolment and those who do not receive tax relief because of the type of pension arrangement their employer operates.