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Second among equals

The industry must focus on what women need from pensions if the earnings’ gap is to be closed.

Anyone wanting to make an instant assessment of the recommendations of Adair Turner’s Pensions Commission could do worse than consider this question: what will they do to improve the position of women?

This issue of women’s pensions has shot to the top of the political agenda in recent months, culminating in a substantial report from the DWP at the start of November, a National Pensions Debate session and the launch of a Women’s Pensions Network co-ordinated by the Equal Opportunities Commission. Scottish Widows has also contributed to the analysis of the issues through a report – “What women want: Pensions designed for the lives they lead” – and a meeting of key influencers.

The disparity in income between male and female pensioners is stark. For example, the DWP report reveals that average total weekly income for men aged 65 to 69 is just over 300 a week. For women it is less than 150 a week. Of this, average private income – including from pension arrangements – is almost 200 a week for men, but below 75 a week for women.

Obviously many women depend on their husbands for the bulk of their income, but with the increasing divorce rate and the strong possibility of widowhood they could end up with lower income than they would want.

Action is needed on two fronts: to ensure that women get a fair deal from state pensions and to maximise their prospects of building up worthwhile private pensions.

Our research found that women are less likely than men to contribute to a pension whatever their family position. And once they have children, saving for retirement tends to fall right off their radar, although their partner is likely to keep going. Only 15 per cent of women with children under five said they were saving for retirement, compared with 50 per cent of men. That is partly due to relative income levels at that stage, but where there is spare money available, women are likely to spend it on their children, and anything they do save is likely to be for their children. Men, on the other hand, are more likely to save for themselves than for their families.

The sacrifices that many women make for their families are enormous and should not mean that they face poverty in retirement. They should also not be made to feel guilty if they save for themselves even when there is a family to provide for.

One way to tackle this is to get away from the idea that retirement savings must be into a pension that cannot be touched until they reach 55. This is the thinking behind the part of Sir Malcolm Rifkind’s Rights of Savers Bill that proposes the Savings and Retirement Account, under which it would be possible to make withdrawals for specified purposes, including helping to fund the purchase of a child’s first house. But much could be done without any change in legislation.

The one savings vehicle which has proved as popular among women as men is the Isa. One of the advantages of Isas is that the proceeds are available at any time if needed. Perhaps we need to encourage women to think of their Isa as retirement planning while they raise the family, with the comfort that it is there if they need the money in an emergency. They can then move the money into a formal pension, with tax relief as they approach retirement.

There are dangers with this approach – the family contingency may actually arise and use up the money that was earmarked for retirement. There is also a danger that they may not be able to move substantial amounts to pension if they are not earning close to retirement, and Isas count towards means-tested benefits whereas pensions not yet in payment are exempt. This last point is one the Treasury should consider in its review of the Isa regime.

These kind of issues need to be explained when advising women on retirement planning, but they do not make such solutions invalid. Our industry has tradition- ally produced products which are targeted at men. We now need to focus on the needs of women. As the Equal Opportunities Commission says: “If we get it right for women, we’ll get it right for everyone.”

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