The word ‘pensions’ looks set to follow the word ‘housing’ and the phrase ‘global financial’ on the list of words that are seen, with depressing frequency, next to the word ‘crisis’. A vast and growing gap exists between what was promised by company pension schemes in previous decades, and the ability of companies to make good on those promises now. In the UK alone, the shortfall runs to hundreds of billions of pounds. As in other crises of modern economies, it looks very much as if the tab will be picked up by those least equipped to pay it: the young, the poor, and those against whom the system is already prejudiced.
Ros Altmann is one of the people trying to make sure that doesn’t happen. The Tory peer has impressive form in this area: as founder of the Pensions Theft Action Group she spent five years working, unpaid, to recoup the pensions of 165,000 people. In the process she defeated the government in both the High Court and the Appeal Court, leading to the establishment of the Pension Protection Fund.
Altmann remains deeply troubled, however, by the pensions system, which she says discriminates against women, low earners, and the young. “Women tend to be the poor relation when it comes to pensions,” she says, “in both the state and private provision. We have made great strides in improving state pensions for women, but there are still cracks in the National Insurance system, and women are much more likely to fall through them than men.”
Altmann says there are many ways in which women can lose out on what may be a financial lifeline in the decades to come. “For example, women often take time out for caring responsibilities and then come back to the labour market, working part-time in a couple of jobs. If each of those jobs pays below the National Insurance lower limit, they get no credit for the state pension whatsoever.
“If they’re not working at all, they do get credited – if they’re caring, for example. So, stay-at-home mums can do better in the state pension system than mums who happen to fall through this crack. The government estimates there’s tens of thousands of women in that position.”
But stay-at-home mums can still miss out on their pension entitlement, in an overlooked rule Altmann calls “absolutely ridiculous”, because it requires women who are currently not entitled to Child Benefit to attempt to claim it or face losing their state pension in later life – when their circumstances may well have changed. “Since the government has means-tested child benefit, a lot of women are losing their state pension accrual, because they know that they’re not entitled to Child Benefit, so they don’t claim it. What they don’t know is that unless you claim it – even if you’re not entitled to it – it doesn’t count towards your state pension. So these women, and it will be women, typically, who would automatically have been credited in the past, have now lost that. They don’t know about it – why would you know? How would you know to claim something you’re not entitled to? Why would you even think about it?”
Even worse, says Altmann, is the fact that even if you discover that you’ve missed out on years of pension accrual through this loophole, you’ll only be able to claim for the last three months. “So you’ve lost that, forever. This is a new unfairness, and it does typically affect women.”
Inequality pervades in private pensions, too, partly because of the gender pay gap and the fact that childcare is only recognised as work if it’s for someone else’s child. “The fact that women work for fewer years and have, on average, lower pay than men, will automatically mean that they will have less of an opportunity to accrue private pensions than the equivalent male. Because, obviously, your private savings depend on your income.”
But Altmann points out that the rules of the private pensions system, too, are rigged against women. “The rules of the auto-enrolment system disadvantage women, because unless you’re earning less than £10k a year, you’re not auto-enrolled at all. So you don’t get the benefit of the behavioural push that auto-enrolment is designed for. If you have a total income of nearly £20k but you earn just under £10k in two jobs – which is much, much more common for women than it is for men – you won’t be auto-enrolled. You won’t get the benefit of an employer contribution to your pension, and any of the other benefits such as salary sacrifice. So again, because it’s income-based, and because women’s lives are such that they are more likely to be affected by the rules of both the state and private pension systems that leave them out, there is still this big gender divide between men and women’s pension prospects.”
In the worst-case scenario, Altmann says a woman could work “multiple part-time jobs, each of which pays less than the National Insurance threshold. She may be earning £15-20k in total, and working many hours a week. And she will end up with no state pension and no private pension. Nothing.”
The women who slip through these cracks in the pensions system face a grim future. Altmann points to the “increasing proportions of women on their own, a higher divorce rate, particularly among older people, and the typical extra reliance on a male partner by a female partner to deal with finance that is still too prevalent, and what you end up with – coupled with the longer life expectancy for women – is an expectation of rising pensioner poverty, particularly among women. You’re going to have more and more older women being much poorer.”
Part of the problem, says Altmann, is that people tend to think of their pension as part of a distant future. “Too few people, men or women, actually plan how much they’re going to have in later life. For women, I would say don’t rely on a partner. Make sure you’ve got independent income, because you never know. An increasing proportion of women end up single. And if you do go through a divorce, make sure you don’t ignore the pension income angle. All too often, a [female] partner just gives up pension rights. Possibly they think they’ll just have the house instead, but that doesn’t necessarily give you the later-life income you might need. When you’re looking to change jobs, take a look at the pension angle. If you get an opportunity to increase pension contributions, take that seriously.”
It’s impossible to discuss the pensions system’s unfairness to women without also mentioning its deep intergenerational inequality. The generation now retiring, or set to retire soon, will leave work with incomes guaranteed for the rest of their lives by ‘final salary’ or ‘defined benefit’ pensions. The generation that follows will spend their careers paying for these pensions, and enjoy no such safety net when they themselves leave work. “The costs of these pensions for the older generation, which employers have been forced to support, mean that employers have less money to spend on the pensions of younger staff,” says Altmann, pointing out that “contributions into the pensions that have replaced the final salary-type schemes are far, far less generous.”
This is true of state pensions as well: “the new state pension system that is building up for future generations will be less generous than the old system it’s replacing. By the 2030s and 40s, when younger people today are reaching pension age, the amount the state will pay them each will be lower, on average, than it would have been under the old system. Which makes it even more vital that we have a successful private pension system on top.”
Altmann describes the recent DWP green paper on pensions as “complacent”, and recommends a much more frank approach to “looking at how we deal, properly, with the run-off of these [defined benefit] pension schemes, and the intergenerational impact they will have.” Indicating that she remains, perhaps, more the campaigner than the Peer, she says women and young people should be angry about what’s happening to their pensions, and active in defending them. “We need younger people to recognise what’s going on, and to be more politically active about it,” she says, because while many people may not need their pension for a few decades, they will face dire consequences if they don’t protect them immediately. “The fallout,” she says, “is happening now.”