Gender inequality in single tier pension plans
The quickfire nature of the evidence sessions at the Pensions Bill’s committee stages meant I was unable to highlight, when appearing before MPs yesterday, what I think is one of the main problems with the government’s proposals. Because the ‘single tier’ state pension is being introduced at a time when male and female state pension ages (SPAs) remain unequal, it means many men will have access to the new system while women born on the same day will not.
There are estimated to be 700,000 women in this position, a quarter of whom have already reached their SPA, born between 6 April 1951 and 5 April 1953.
The common assumption is that these women will get around £30 less per week as they retire in the old system, compared to what they could have got under the new rules (the difference between the basic state pension and the likely single tier rate). This isn’t accurate in most cases – but there will still be big losers resulting from this policy, and the government has essentially concealed the information it has about this impact.
A paper published by DWP earlier this year said that the median entitlement for this group of 700,000 women in the old system is £125 per week, compared to £131 in the new system. A more palatable loss, apparently, of only £6 per week.
However, the government has neglected to publish the mean loss among this group. This tells me it is much higher than £6, because while a lot of the women affected will get a lot less than £125 under the old system, not many will get much more.
If the government believes that the mean figure is misleading (that is, skewed by extreme cases at either end) then it should have published the decile or quartile points in the distribution of losses – this would have at least given an indication of the volume of people likely to suffer a significant loss as a result of this policy.
The government’s paper on this issue also claims that 90 per cent of this group will get more from their state pension over their lifetime than men born on the same day, precisely as a result of receiving their state pension at a younger age. This is a highly misleading statistic that fails to acknowledge that state pension benefits for the vast majority are not left lying in bank accounts accruing interest, they are used to cover the basic costs of living for those in retirement. SPA marks the boundary between working age and retirement – and these women will be in retirement for longer, therefore not receiving an income from the labour market.
Based on the only figure we have, £6 per week, I think that allowing this group of women into single tier would cost around £200 million per year. Not a great deal in the context of expenditure on pensioner benefits – but it would mean breaking free of the straightjacket of cost-neutrality that ostensibly underpins these reforms (even though single tier costs less over the long-term, and results in increased NICs revenue for the Exchequer immediately).
The government has also suggested that this group could defer their (old system) state pension, in order to increase their weekly payment when they do fully retire. This might be worthwhile advice for those able to postpone retirement, but it’s not an option likely to be realistic for many. Analysis we published last year showed that more than a third of the women aged 5 years below current SPA are economically inactive, compared to around 20-25 per cent of the 16+ population in general (including students).
Among these, more than a third are inactive due to long-term sickness or disability, and more than a fifth due to caring responsibilities. Of those classed as unemployed, around half had been unemployed for more than a year. In any of these circumstances, deferring state pension entitlement is highly unlikely to be a genuine prospect.