Women and Pensions
Women and Pensions
Speech by Malcolm Wicks, Minister of State for Pensions, to TUC Pensions Conference - 6 Dec 2004
As you are aware, Pension reform is high on just about everybody’s agenda. There has been a great debate over the demographic challenges of the future and how we will face up to them.
The Pensions Commission made its initial report in October. Commonly known as the Turner Report, I think we should all recognise the efforts that Jeannie Drake has made as a member of the Commission. And I’d also like to congratulate her on her appointment as one of the five non-executive directors of the Pension Protection Fund.
When we consulted on the proposals in the Pensions Green Paper, the message that came back time after time was that if we wanted people to save for their retirement, then the pensions promise must be kept.
This is the genesis of the Pension Protection Fund. It is a major new institution which radically transforms the nature of protection for members of defined benefit schemes.
The PPF is one element of a whole package of measures provided in the Pensions Act to ease the financial and administrative burden on employers whilst offering a sustainable system of protection to individuals. This Act, which received Royal Assent just two and a half weeks ago, will provide a huge boost to confidence in private pension provision in Britain.
However, lack of equality in pension provision is a challenge that, if unchecked, has the capacity to undermine the very confidence we are trying to bolster in our pension system. It has to be tackled with all the will and determination we can muster.
It comes as little surprise, therefore, that a major element of the Pensions Commission Report looks at the situation of women and pensions provision.
Old systems and attitudes have left their mark. Despite increasing recognition of the inequalities that women face, not enough has been done to erode the historical injustices within pension provision.
We must ensure that our pension system evolves concurrently with changes in our society. It must reflect the very different role that women have in comparison to when the pension system was designed, when women were expected to marry, stay at home and raise a family while men went out to work.
We welcome the attention that the TUC is giving to this important issue, and I want to assure you that Government recognises the importance of this debate.
The TUC report is called, ‘Time for Action’, and I want to talk today about the action we are taking.
I want to focus on three major areas:
Firstly, the steps required to deal with inequalities affecting today’s women pensioners.
Secondly, the steps taken to tackle the causes of inequalities for future generations of women pensioners.
And thirdly, the steps being taken to ensure that in the future, women (and men) can look forward to having equal opportunities to accrue both state and private pension entitlements.
Tackling Inequalities for Today’s Pensioners
When we came to office, we set about identifying and tackling the symptoms of inequality.
Only a half of female pensioners are entitled to a full basic State Pension compared to 90% of men. Of those women, only approximately a third receives the full pension as a result of their own contributions; the remaining having to rely on entitlement through contributions their husbands have made.
On top of this, only 30% of women have additional private pension provision, compared to over 70% of men.
The result of this is obvious. Women pensioners are poorer in retirement than men. It is not by chance that two thirds of those benefiting from Pension Credit are women. It is because they are our poorest pensioners.
I know that people have concerns about means-testing. But in 1997 we faced a situation where pensioners were being expected to live on as little as £69 a week. We could not look to the basic State Pension for a remedy; many of our poorest pensioners only have a partial entitlement.
The introduction of Pension Credit has meant that despite the unequal accrual of the basic State Pension, women and men now receive approximately the same amount of state pension provision overall.
The targeting of our resources has meant that the poorest third of pensioners gain almost 3 times as much as if the same resources had been spent on a higher basic state pension for all. We have lifted 1.8 million pensioners out of absolute poverty since 1997. That is a substantial achievement and means we have changed those people’s lives.
Alan Johnson and I have been clear: Pension Credit stays as long as it is needed to defeat pensioner poverty.
Our other measures, free TV licenses, winter fuel payments, additional payments for pensioners over 80 and the one off payment for those aged 70 and over, all contribute to raising the standard of living for both men and women in retirement.
Tackling Causes
But it is not enough to just identify and tackle the consequences of inequalities. We must also identify and tackle the causes.
In my department, ‘Work’ and ‘Pensions’ are not exclusive entities; they are inherently inter-connected. The causes of inequality of pension provision run through both.
In work, women have a higher prevalence of interrupted work patterns and lower employment levels. They are more likely to be in types of employment with less pension provision opportunities and lower levels of earnings. These factors all put women at a relative disadvantage when compared to men in terms of their savings potential.
In Pensions, women have faced a lack of choice and flexible options to suit their differing work patterns, whilst the effects of increased divorce rates and co-habitation all tend to have a more detrimental affect on women’s pension provision compared to men.
So we have opted to tackle the causes across a wide front.
Work
In general terms, higher employment rates and better pay will help improve the pension position of future female pensioners.
To further this aim we are taking action to improve access to childcare facilities and improve the conditions of part-time workers.
The root cause underlying women’s different experiences in the labour market is that women usually take a greater share of family responsibility. As a result, they tend to spend a number of years in part-time work or outside the labour market, which puts them at a disadvantage when compared to men in terms of their earning and therefore saving ability.
Access to good and affordable childcare is therefore imperative to give many women the opportunity to work, learn or train. The Government is committed sustaining the expansion of childcare provision by increasing the stock of registered places by a net total of 110,000.
We have also acted to ensure that part-time work is rewarded as it should be. Eight out of ten of Britain’s 6 million part-time workers are women. In 2000 and 2002, we introduced part-time workers regulations to improve working conditions. This makes it illegal for part-time employees to be treated less favourably than full time employees in pay, annual leave, sick leave and access to company pension schemes.
Improving pay is an issue of particular importance for women. Part-time work and the sectors that women have a higher tendency to work in are traditionally lower paid. The introduction of the National Minimum Wage has benefited over one million people; over 70% of these are women.
The Low Pay Commission estimates that it has had the greatest effect on women’s pay since the 1970 Equal Pay Act.
Pensions
So, that’s what we’re doing with regard to ‘work’.
On Pensions, in 1978 the state recognised the importance of caring and women’s role as the principal carer. The introduction of Home Responsibilities Protection allowing mothers to accrue entitlement to a basic State Pension, was a huge step forward.
Further reforms to the state pension system since 1997 mean that more women, if they are in some form of work, are justly rewarded with the accrual basic state pension rights. The introduction of the Primary Threshold Level means that whilst National Insurance Benefits start accruing at £79 a week, contributions only become payable on £91 a week. This has benefited over half a million women.
We have also made reforms to include lower earners and carers in additional state pension rights. The State Second Pension, for the first time, provides additional pension for carers and some long term disabled people.
Almost all of the 2.5 million carers who will benefit from the State Second Pension are women, as are around 70% of the 5 million low earners also accruing State Second Pension rights. And lets not forget, for these groups, the accrual rate is at least twice as generous as in the old SERPS scheme, whilst carers used to be completely excluded from second state pension rights.
In addition, in December 2000, the Government brought in legislation that enabled couples to share the value of their pensions on divorce or annulment of their marriage. The pension sharing arrangements introduced by the Government allow the former spouse to acquire a pension in their own right, and provide security of income throughout retirement.
On the private side, we have introduced Stakeholder Pensions which are simple, good value and not restricted to those who are working. Contributions can be stopped and started without penalty, moved between providers without charge, and family and friends can make contributions.
This provides a pension saving alternative which can be tailored to individual needs, which is especially important to women. At the end of September this year, almost 2.2 million had been sold, with the latest statistics showing around one third of sales going to women.
Although women are under-represented amongst those with private sector occupational pensions, we must not forget that over 5 million working age women are members of occupational pension schemes. Indeed, when in full time employment women are more likely to be covered by an occupational pension than men.
Measures in the new Pensions Act to improve the security and simplify the structure of existing occupational pension provision are therefore very relevant to women, especially those regarding securing the rights of early leavers, state pension deferral and increased information in the workplace.
The Future
All of these provisions will improve the situation of women. The Pensions Commission acknowledges this, stating that progress is being made and that, and I quote, 'a number of recent changes in the state system will improve the future position of female pensioners'.
However, more needs to be done.
Events like today are hugely important in both bringing attention to this issue and providing a forum for ideas and discussion. We welcome this. It provides an invaluable contribution to our aim to move forward with evidence based policy, so that the UK Pensions System is a system which works for all our citizens.
We will strive to make sure that all of our efforts bear fruit. We want to look forward. We want to look forward to a Britain where everybody has the opportunity to work, the opportunity to save with confidence and the opportunity to look forward to a decent income in retirement.
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