A longer read: Women born between 1954 and 1960 lose up to £40,000 each

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From October 6th anyone born after 5th October 1954 will have a state pension age of 66 – for some women this is six years later than they were originally promised.

The 1995 Pensions Act intended raising the age of eligibility to the State Pension for women to 65 over a ten-year period between 2010 and 2020. The 2011 Pension Act accelerated this and raised the age to 66 for both men (previously 65) and women.

Women born in the 1950s might have spent half their working lives paying National Insurance in the knowledge they would get their State Pension at 60 years of age and may now get up to £40,000 less than they knew to be their entitlement.  There is evidence of women retiring only to discover they will not get their State Pension. Even some people closely involved with older people and pensions were unaware of the precise timetable as so little publicity was given to it.

The “Back to 60” campaign lost its appeal in the High Court, in October, but “Women Against State Pension Inequality” continue their campaign. These women have a very real grievance and yet appear to be being brushed aside. Both LibDems and Labour had it in their manifestos to do something about it. And former Pensions Minister, Baroness Ros Altmann would appear to support some compensation on grounds of maladministration as these women were not written to personally in either 1995 or 2011.

More than 1million female workers have no savings or private pension provision, of which 43% have less than £100 saved. Two million people over 75 live alone, of which 1.5 million are women.

There are 1.9m older people living in poverty in Britain today many of whom were forced into retirement and condemned to spending the rest of their lives in poverty. Britain has one of the lowest State Pensions in the developed world at just 29% of average earnings with the official definition of poverty being anything less than 60% of median household income. Britain’s 29% compares with 100.6% in Holland, 94.9% in Portugal, 93.9% in Italy, 91.8% in Austria, and 81.8% in Spain.

When the State Pension was introduced it was linked to earnings so that it would keep pace with the growth in the economy. As the economy grows so too do the expectations and requirements of life – for example, very few people had a refrigerator in the 1950s and yet it would be difficult to live without one today.

Margaret Thatcher changed the “earnings link” to a “prices link” after which the pension was eroded over several decades. The “triple lock” introduced by the coalition government whereby the State Pension is increased by earnings, prices or 2.5%, whichever is the greater, was an attempt to reverse this erosion. However, the State Pension, at just over £7,000 per year, is still less than half the Living Wage of someone working full time which is deemed to be the minimum required to live!

The abolition of the “default retirement age of 65”, also by the coalition government, was one of the last human rights issues to be tackled in that there was no other group of people who could be excluded from employment in this way. Imagine the outcry had it been possible to deny people employment or sack them on grounds of gender, race, disability or religion and yet until 2011 it was legally acceptable to exclude people from employment on grounds of age alone. Redundancy had been shown to have a more lasting debilitating effect than either divorce or bereavement. Enforced retirement was like redundancy; only more so, as there was little hope of further work. There was little wonder that there was so much depression amongst older people.

Now that people can no longer be forced into retirement there is a case for linking the eligibility to the State Pension to retirement, and not age, so that people who go on working continue to pay National Insurance and don’t draw their State Pensions until they retire (with phased arrangements). This might be a catalyst to freeing up money to both compensate women born between 1954 and 1960 and to raise the State Pension to 60% of national average earnings in order to lift older people out of poverty and produce consequential savings. Given the correlation between income and demand upon the NHS this would reduce demand on both health and social services with compensatory savings to be made. Currently 4/5th of NHS expenditure is on older people with £19.6billion spent on malnutrition amongst older people.

If Margaret Thatcher was responsible for undermining the State Pension, Gordon Brown can be held accountable for the demise of “final salary, defined benefit pensions” with his 1997 tax raid on pension funds at a time that most were in surplus. Gordon Brown abolished the tax relief pension funds earned on dividends from stock market investment. This reduced the value of retirement funds by over £100bn and has since raised over £230bn in tax. Up until then most pension funds had built up healthy surpluses and were sustainable.

Surely with a defined benefit scheme there should be a legally binding contract the minute the first payment is made? These constantly changing returns do little to instil confidence or encourage people to make provision for their retirement.

Even the, so called, “gold plated” final salary defined benefit public sector pensions have been hit. Until 1974 they were index linked to earnings after which they were linked to RPI. Then a little over ten years ago the index was changed, quite unilaterally and without consultation, to CPI: even for pensions in payment where surely there must have been a contract as people had taken a decision to retire after consideration of the pension they would get. Since then, pensions linked to CPI have increased by 26.6% when had they still been increased by RPI they would have gone up by 32.4%. Average earnings have gone up by 41.7%.

More recently public sector defined benefit pensions have changed from a percentage of final salary to a percentage of average salary which the Government argued would favour the lower paid as they would get a smaller cut!.

Just one in twelve people are now in a final salary defined benefit pension scheme down from 34% in 1997.

The introduction of auto-enrolment, in October 2012, has seen an increase in the number of employees in occupational pension schemes from 47% to 88%. However, these are defined contribution schemes with no guarantee of the eventual pension.

When one retires one is as rich as one is ever likely to be, interest rates have affected savings and few are able to replenish their savings when drawn out for major and necessary purchases. Add to this the alarming erosion of incomes outlined above and one begins to see the extent of the problem.

Surely, we will never get people to save enough for their retirement until they can be assured that their expectation when commencing contributions will be honoured. The Government needs to act and act now, leading by example, undoing the harm it has done and restore confidence by compensating women born between 1954 and 1960 and ensuring that in future agreements are honoured and legally binding from the time the first contribution is made.

 

 

* Chris Perry is a former Director of Social Services of South Glamorgan County Council, a former Non-Executive Director of Winchester & Eastleigh Healthcare NHS Trust and a former Director of Age Concern Hampshire.

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12 Comments

  • Chris Perry always produces well informed well argued articles – as I realise from my time as a Cabinet member for Social Care. I hope the party (and especially the Social Liberal Forum) will makes use of his policy expertise on social care (a burning issue exposed by Covid).

    Chris is correct to say, “Margaret Thatcher was responsible for undermining the State Pension and Gordon Brown can be held accountable for the demise of “final salary, defined benefit pensions” with his 1997 tax raid on pension funds at a time that most were in surplus. Gordon Brown abolished the tax relief pension funds earned on dividends from stock market investment”.

    But…. it must be added add that Liberal Democrat M.P.’s – under Clegg/Alexander – voted for the 2011 Pension Act. If Ed Davey….. and M.P.’s such as Ms Jardine who says she supports WASPI women… are to make any progress they must make clear their regret about the 2011 Act and attempt to wipe the slate clean. Anything less undermines Liberal Democrat credibility…. something in short supply these days.

  • Not to forget, you now need 35 years of NI contributions rather than 25. LibDems have missed a trick, some of Covid money could have been used to allow people for a few years to get the state pension at 60, keeping them out of unemployment stats and opening some jobs for youngsters. This would have been a one-off cost rather than an ongoing cost.

  • Laurence Cox 11th Dec '20 - 1:31pm

    David Raw is quite right. The Lib Dems in coalition rolled over and let the Tories have their way on pensions. This failure has to be laid at the feet of the then Leader, Nick Clegg, and his fellow Quad member Danny Alexander.

    “More than 1million female workers have no savings or private pension provision, of which 43% have less than £100 saved. Two million people over 75 live alone, of which 1.5 million are women.”

    While factually correct, this is irrelevant to the “Back to 60” campaign. Any woman over 75 will have retired at 60.

    What I find disappointing about this article is that it makes no reference to the Party’s “Citizen’s Pension” which has been Party Policy since 2004. The best way to deal with pensioner poverty is to pay everyone a pension based on residence (and hence paying taxes in this country), rather than on the basis of National Insurance contributions linked to employment. Removing the principal need for NI would mean that it could be eliminated as a separate tax and rolled into income tax, meaning those on unearned incomes would be paying the same rate of tax as those on earned incomes.

  • Barry Lofty 11th Dec '20 - 3:03pm

    My wife is 77 and did not retire until she was 65, well 66 actually, as she worked an extra year to coincide with my retirement, as usual we seem to be out of step with the rest of the population.

  • The original article does seem to conflate some facts and I think some unpicking needs to be done.

    It states:

    “the lowest State Pensions in the developed world at just 29% of average earnings with the official definition of poverty being anything less than 60% of median household income.”

    Most pensioners are owner occupiers (approx three-quarters) – owning their homes outright without a mortgage. Those that rent their homes and just get the state pension will get essentially all (or in virtually all cases very close to all) their rent paid by housing benefit. So virtually all pensioners have net nil or very low housing costs.

    The pension credit level of pension – the minimum guarantee income for a couple is £262.50 per week (2020/21) – the average median weekly household income after housing costs is £417 – that’s 63% of earnings – now it is less than that because this is different years and I couldn’t find the exact comparable years but it means that pensioners should be receiving 60% of median earnings and has been noted the triple lock means there will be a slight above earnings rise (in that it either goes up by earnings or in some years when that is low by more than earnings).

    Now there are reasons why some pensioners don’t get 60%. They have higher housing costs for some reasons. Some may not claim pension credit – but the coalition reforms mean that the pension credit level will become the basic state pension level.

    The 29% is the replacement level of earnings. This is (I surmise) because there is a greater earnings related state pension in other countries but they probably pay for it by higher taxes or social security contributions. The Guardian notes: “Once the UK’s private pensions are added to the state pension, the average income in retirement for UK pensioners rises to just over 60% of former career earnings, just below the OECD average.”

    Fullfact noted in 2016: “The OECD told us these amounts [£150 a week in France and Germany, and £80 a week in Spain.] are comparable to pension credit in the UK, which is an income-related benefit that (in 2016) could top up a single pensioner’s weekly income to £155 a week if their state pension and other earnings were below that”

  • The article states: “£19.6 billion spent on malnutrition amongst older people.” In fact this was the estimated cost of malnutrition on the *whole* population with half of the cost coming from pensioners. I can’t immediate see how this is calculated but it comes from an authoritative source. Some of the cause no doubt comes from poverty and low income but other causes may be loss of smell and taste in older people, loss of other senses, living on their own, living in care homes, dementia, other illnesses, going in to hospital more (as patients normally lose weight) etc.

    https://www.bapen.org.uk/pdfs/economic-report-short.pdf
    https://www.bapen.org.uk/malnutrition-undernutrition/introduction-to-malnutrition?start=3

    The article states: ” As the economy grows so too do the expectations and requirements of life – for example, very few people had a refrigerator in the 1950s and yet it would be difficult to live without one today.”

    May be – I can only find prices on the internet for fridges in America – in 1952 one cost $329.00, at a time when the average annual salary was $3,900 – so equivalent to over £2,500 today against the actual cost today of fridges starting around the £100-£200 mark.

    http://www.thepeoplehistory.com/50selectrical.html
    https://www2.census.gov/prod2/popscan/p60-015.pdf

  • The change to CPI for public sector pensions came into effect in April 2011 as far as I can see, there *was* consultation on the issue (and I know that MPs were lobbied hard on the issue). Additionally the Lib Dem manifesto stated: Additional measures to pay down the deficit will include: “Reforming public sector pensions to ensure that they are sustainable and affordable for the long term.” (I’m not sure there was the promised independent review though!)

    The Conservative 2010 manifesto stated: “Other measures we will take to encourage saving include:… working with the trade unions, businesses and others to address the growing disparity between public sector pensions and private sector pensions, while protecting accrued rights.”

    So it can be said that the coalition in both parties had a democratic mandate for reform of public sector pensions.

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/220340/cpi-private-pensions-consultation.pdf
    ;https://conservativehome.blogs.com/files/conservative-manifesto-2010.pdf
    https://general-election-2010.co.uk/2010-general-election-manifestos/Liberal-Democrat-Party-Manifesto-2010.pdf

    Between April 2011 and October 2020, if I have done my calculations correctly
    CPI has increased by 17.1%
    RPI has increased by 20.4%
    Median earnings from 2011/12 to 2018/19 have increased by 10.2%

    https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/latest

    https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2019

    —-

    The references for the first comment are:
    https://www.theguardian.com/money/2017/dec/05/oecd-uk-has-lowest-state-pension-of-any-developed-country
    https://fullfact.org/online/pensions-countries-comparisons/
    https://fullfact.org/europe/pensioners-eu-uk/
    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/875261/households-below-average-income-1994-1995-2018-2019.pdf
    https://commonslibrary.parliament.uk/research-briefings/cbp-8191/
    https://www.gov.uk/government/publications/benefit-and-pension-rates-2020-to-2021/benefit-and-pension-rates-2020-to-2021

  • The change is simply the combined consequence of gender equality, and the deferment of state retirement age given significantly increased life expectancy. Both are the right things to do, and the changes were well publicised some years in advance.

  • Kay Kirkham 12th Dec '20 - 4:47pm

    I find it hard to believe that women failed to notice the change introduced by the 1995 act. It was an entirely reasonable change although you could argue that the Government should have written to women affected.

    I am the oldest of four sisters born 1950, 52, 56 and 60. We all knew what was happening.

    The real problem was the accelerated change in the 2011 act. It left many women too little time to deal with their personal financial hit, even assuming they had the resources to do so.

  • James Fowler 12th Dec '20 - 8:33pm

    I’ve seen this issue do the rounds. In my view the original changes were widely flagged up well on advance in the 90s. Then the Coalition accelerated the timetable – perhaps unfairly. The two changes are often conflated by campaigners into one massive injustice – which it isn’t.

    Anecdotally, I’m 40 years old and have a young family. Both my occupational schemes have been revised downwards to my detriment, and like many millions of others the state pension that the WASPI women believe should be theirs at 60-65 will not be mine until 68 – or quite possibly even longer. One person’s justice is another person’s bill. After a decade of watching pensioners’ incomes rise as working peoples’ stagnate this isn’t the moment for the older generation to demand even more cash as youth unemployment rockets and home ownership collapses.

    While the Coalition’s changes may have been wrong, the wider optics are dreadful. Older people can count themselves fortunate that the young don’t vote and that therefore their own pet irritations at least get an airing. By contrast, systematically ripping off young people is so endemic it doesn’t even get a hearing – admitting the scale of it would involve upturning society.

    Just think: If the WASPI women succeed, then young people will have pay the costs through even more taxation on top of their rent and debts. Now there’s a real ‘victory’ for social justice for you.

  • Jane Ann Liston 12th Dec '20 - 11:27pm

    I agree with Kay; how on earth did so many women apparently miss knowing about the 1995 Act and blithely assume until just a few years ago that they could retire with full state pension aged 60.

    I’m 64, and knew, when I started a pension plan back in 1995, that I wouldn’t be retiring at 60. I assumed it would be 65 – it will in fact be 66, but I can cope with waiting one extra year.

    The other point is that I had gaps in my NI contributions, so that had I retired at 60 I would not have qualified for a full pension. As it is, the extra years of contributions have enabled me to plug the gaps. and I will now have the required 35 years once I reach my 66th birthday.

    Yes, almost certainly the DWP or one of its previous incarnations should have alerted women to the fact that pensions at 60 were a thing of the past but surely people should be taking some responsibility and keeping themselves informed.

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