A solution to the pension crisis has been helped by the abolition of the default retirement age. This facilitates longer working lives and helps encourage people to keep working longer rather than wasting their skills by being forced to stop work without enough money to provide them with a decent lifestyle.
Some people will not have enough pension to allow them to live well for several decades in retirement. Abolishing the DRA helps people adjust to the fantastic increase in life expectancy that has occurred.
Second, the Government is consulting on long-overdue radical state pension reform. A flat-rate state pension above pension credit level will make it worth-while to save without fear of the mass means-testing penalisng private savings. We cannot successfully proceed with auto-enrolment of all workers into company schemes without this. So far, so good but other pension policy changes are worrying. The change in uprating of state pensions from RPI to CPI means a major reduction of future pension income, notwithstanding the “triple-lock” for the state pension.
But the biggest disappointment is the attack on pensions of older women in the private sector, who have already been disadvantaged all their lives in terms of both state and private pensions. Despite its explicit assurance that women’s state pension age would not start increasing beyond age 65 before 2020, the coalition’s Pensions Bill proposed acceleration of the women’s state pension age would start in 2016, with just five years’ notice. This was a terrible blow for so many older women who, without fuss, had already accepted that their pension age would start rising from 60 in 2010 to 65 in 2020. So, with proper notice, these women had already had to plan for a three, four or five-year pension age rise, which they often did, responsibly, with the help of advisers, just as one would want people to do when planning their retirement income.
These women generally have little or no other pension income to rely on outside the state system, since they were banned from joining company schemes in their early lives and had typically earned far less than men due to their caring responsibilities. Nevertheless, they understood that pension ages for men and women needed to equalise and that higher life expectancy will require higher pension ages. What they had not, and could not have, prepared for, however, was a second substantial pension age rise without adequate time to change their plans.
Many of those who wrote to me had already retired in their mid-50s to care for others or because they were not well. They suddenly face a future where the state pension they were relying on will be denied to them despite contributing their National Insurance in good faith. They feel betrayed by the pension system.
After a campaign which included Saga and other groups plus strong opposition in Parliament, the Government watered down its proposals so that the maximum rise in pension age would be 18 months rather than two years. Amendments calling for notice of at least 10 years for such major changes were defeated in Parliament by Government claims that taxpayers could not afford to bear the cost of giving additional notice. So, starting in 2016, the increase is still going ahead.
Equalising state pension ages is entirely right but the unfairness of this policy has caused huge distress to many. Astonishingly, this was further compounded by the Government’s announcement in Parliament, just two days after the Pensions Bill state pension changes were pushed through, that taxpayers could afford to give public sector workers at least 10 years notice of changes to their pension arrangements.
Specifically, the Government proposed that no changes would be made to the pensions of public sector workers who were within 10 years of retirement. Ministers announced: “We think that is fair, actually, because when there are changes made to the retirement date of the State Pension age, a 10-year period seems like a reasonable notice period to give because these are people who are closest to retirement, obviously, whose planning is most advanced, who have got least ability to change their arrangements.”
This is in direct contrast to changes in state pension ages for women. Those aged 56 in October 2010 were told that their pension age would rise by between 18 and 24 months, with just seven years notice. Then the Government said it had taken their concerns on board so the maximum they would wait was 18 months – much less than the 10 years to make contingency plans for an extra 18 months without state pension. Just two days later, the Government says only 10 years notice is fair.
Such double standards are difficult to square with a fair pension system and merely compound the difficulties for private sector workers in planning ahead. They are given the impression that making long-term plans is pointless because even very close to retirement, the Government can come along and move the goalposts. They require a solid base on which to plan.
Ros Altmann is director general of the Saga Group