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Malcolm McLean: How to make pensions system fairer for women

Male and female state pension ages have finally equalised but the same cannot be said for the retirement incomes they receive

Although the age at which men and women can claim the state pension has now equalised, the same cannot be said about the overall levels of pension income the different genders receive.

Historically, women have had a raw deal from the pensions system, which was originally directed at and largely favoured men. Attitudes have changed quite a bit over the years but different lifestyle habits between men and women are still seen and perpetuate the disparity.

It is still often the case in couples that men continue to work and women take time off or give it up to bring up children and take on other responsibilities, such as caring for elderly parents or other relatives.

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In terms of pension provision, this has a double-whammy effect. They effectively lose out twice. By not being in regular full-time employment, they do not benefit from an employer-provided workplace pension and, in many instances, they also do not build up a full entitlement to a state pension as a consequence of missing National Insurance contributions.

Addressing the balance
From the late 1970s, successive governments have recognised the extent of the problem this can cause for women subsequently having to manage on their own, through widowhood, separation or divorce, and have tried to legislate to give them a better opportunity to build a pension income in their own right.

In relation to the state pension, the government has brought in a series of measures designed to give NI credits for caring responsibilities.

It scrapped the so-called married women’s option for reduced-rate NICs (which effectively counted for nothing in terms of state pension entitlement) and brought women entering or re-entering the workforce after 1977 in line with men. It also reduced the number of qualifying years needed to secure a full basic state pension to 30 from 39 for women, and 44 for men.

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It is also true the new state pension introduced in April 2016 will provide a better balance between men and women over time, as it is based solely on NI qualifying years and will have no work-based earnings-related element in it (unlike under the former Serps and S2P additions, which largely favoured men who tended to be on higher earnings than women, who also often worked part-time).

On the private pension front, the government has legislated to give equal access to membership of occupational pension schemes for part-time workers (mainly women) and introduced pension sharing on divorce and, of course, more recently, auto-enrolment.

A long way to go
But there is clearly still a long way to go to secure greater equality between the genders. In November 2017, a survey conducted by Which? revealed the average weekly amount of state pension received by women was 82 per cent of the average for men: £126.45 per week for women, compared with £153.99 for men.

A more recent survey suggested the total gender pension gap was as high as 40 per cent, more than twice that of the earnings gap.

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So is there more that the government could do to assist women to get a better deal out of the pensions system? Well, yes there is, on several fronts. For example:

  • Do more to publicise the range of NI credits available towards the state pension, especially those which are not normally given automatically, such as some carers’ credits, grandparents’ credits and child benefit credits for higher earners not in receipt of the benefit;
  • Increase the pension tax relief allowance for non-earners, which has been fixed at £3,600 for many years;
  • Actively encourage working husbands/partners to contribute into a personal pension plan for a non-working spouse;
  • Reduce the current £10,000 trigger point for auto-enrolment into a workplace pension;
  • Find a way of ensuring tax relief is given to all lower paid workers on contributions into a workplace pension plan, under a net pay arrangement.

State pension equalisation day on 6 November was a milestone in producing parity between the genders on state pension ages but not, it seems, in relation to the actual pension incomes they receive.

That needs to change and making it do so ought to be a priority for both the government and the industry in the development of a better and a fairer pensions system, more suited to the needs and demands of women in the 21st century.

Malcolm McLean is senior consultant at Barnett Waddingham

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