7 September 2004
Malcolm Wicks MP, Minister of State for Pensions
Association of British Insurers
“Women and Pensions”
(CHECK AGAINST DELIVERY)
Introduction
1. Attitudes to gender have changed over the centuries and some situations which may have been common practice are simply unacceptable in these modern times. There has been so much written and rewritten about how everyone is equal at birth and yet the simple fact remains that the gender one is born with acts as a very robust predictor, not only of your retirement income, but of your entire economic experience.
2. I have divided this speech into three parts. In the first part I will outline how women’s pension accumulation differs from that of men. I will then move onto considering exactly what the nature of this problem is, and how it comes about. In the third section I will run through how this government has acted and will continue to act in order to meet this gender pension challenge.
Part 1 – Evidence
3. Women and men start life as economic equals, and this is reflected in their employment figures up until about their mid 20s. After this time employment rates for men and women diverge significantly, with the employment rate for women aged 26 to 40 being around 15 percentage points lower than that of men.
4. This employment rate hides a number of further distinctions. Women are much more likely to be part time workers than men. Of women in employment, 43% work part-time compared with only 9% of men.
5. If we refine our employment figures to show only full-time employment, we see that women always display slightly lower full-time employment coverage than men after the age of 16, but after the age of 26 the proportion of women in full-time work falls even further.
6. Another problem is that when women do work, their pay tends to be less than that of men. The ONS estimated that in April 2003, women’s full-time hourly earnings were 82% of men’s, although it should be noted that this is the lowest value recorded since records began.
7. The picture we are painting seems to support the hypothesis that the difference between the male and female economic experience is due to the fact that women are still overwhelmingly more likely to perform caring duties within a family. This poses two significant problems for women’s savings prospects.
8. Firstly, it means that women are at a disadvantage when it comes to career progression, income and thus pension saving potential. Income rises with seniority and career progression, and the interruptions necessary for caring mean that this progression is typically slower for women.
9. Secondly, current female pensioners are disadvantaged because until 1978 the government did not recognise the value of caring responsibilities at all. As a result, many of these women now possess incomplete National Insurance records and thus are only entitled to a partial basic State Pension.
Part 2 – The nature of the problem
10. As we have discussed, the root of the women and pensions challenge lies in the uneven distribution of familial caring responsibilities, and the historic lack of regard for this “invisible economy”. This is a problem that has gradually gained importance as a result of the breakdown of the model Beveridge family.
11. The State Pension was first introduced on 1 January 1909, with the foundation of the contribution-related basic State Pension being laid in the 1940s as part of the wide-ranging Beveridge reforms.
12. At this point in time the role of women in society was very different. The accepted household model was a stable marriage with the husband as the sole or at least main economic provider. The woman may have had a job of her own but this was often her secondary concern behind caring for the household and the children.
13. The original basic State Pension should therefore be seen as delivering to this model unit. The reduced married women’s stamp, the survivor’s element of the BSP, and the ability to claim a pension in one’s own right based on 60% of a husband’s entitlement are all legacies of this time and should be viewed in this social context.
14. Clearly society has moved on since this time and we have seen a consistent breakdown of the Beveridge model. Divorce has become increasingly common, demanding a shift of policy focus from the household to the individual. It is no longer secure for women to be reliant on their husbands, and the increasing rate of family breakdown means that women are often left vulnerable unless they have made pension arrangements in their own right.
15. What we have, then, is a clear case for modernisation. Although some steps forward had been taken, such as the introduction of Home Responsibilities Protection in 1978, this government was presented, in 1997, with a mountain to climb. We have since made a number of significant and modernising reforms, to which I will now turn.
Part 3 – What is the government doing for women?
16. It is intellectually useful to split our policy response into two parts – the measures designed to provide immediate help for today’s female pensioners, and the policy measures designed to help tomorrow’s women to save adequately for retirement. I will deal with each of these in turn.
Current pensioners
17. Our most significant measure to benefit today’s pensioners has clearly been the Pension Credit, which ensures that no single person need live on less that £105.45 per week, and no couple need live on less than £160.95 per week.
18. Pension Credit has had a huge and immediate positive impact on the living standards of many female pensioners, with two-thirds of those entitled to Pension Credit being women, and half of these women are aged 75 and over.
19. Pension Credit has not been our only response, however. The introduction of Winter Fuel Payments has helped 11.5 million pensioners in around 8 million households. These payments are worth £200 per year, or £300 for households with a person aged 80 or over.
20. In addition, over 5 million households will gain from the over 70s Additional Payment, and we have ensured that no pensioner pays tax on an income of less than £131 per week. We have also restored free eye tests for all pensioners and reduced VAT on fuel from 8% to 5%.
Future pensioners
21. As well as easing the pressure on our current female pensioners, this government has also been working hard to ensure that future female pensioners will have as fair as possible an environment in which to save.
22. We have done this through the two-fold strategy of improving the performance of state benefits for women, as well as making private saving more accessible through measures such as the Informed Choice programme.
23. On the state pension side, we have endeavoured to develop measures that reward work done within the “invisible economy” that we have been discussing. The State Second Pension extends second-tier pension rights for the first time to people without earnings who are caring for young children or a disabled adult. Almost all of the 2.5 million carers who will benefit from the State Second Pension are women.
24. The State Second Pension is not only a good deal for carers, but also a good deal for low earners, being at least twice as generous as SERPS for low earners. Around 70% of the 5 million low earners who will benefit are women.
25. On the private side, we have instituted a number of labour-market measures aimed at increasing the pay of women, and thus increasing their savings potential. Examples of this include the National Minimum Wage and Working Tax Credits. We also brought in legislation that enabled couples to share the value of their pensions on divorce or annulment of their marriage. The pension sharing arrangements introduced allow the former spouse to acquire a pension in their own right, and provide security of income throughout retirement, as well as a clean break. They also enable more couples to reach a fairer settlement in cases where the pension to be shared is a significant asset in the marriage.
26. Increasing pay is all just as well, but ultimately, the individual has to make a conscious decision to save. I have been considering the same question as the ABI have in their snappily-entitled “Shoes or Pensions” report, and I don’t think it takes much to agree that as a nation, our choice is and has always been between consumption now and consumption later. I’m sure we’d all agree that the “shoes or pensions” choice is not unique to women – men, for example, face the eternal “pensions or big cars” dilemma.
27. This government’s approach to that question is to try to help the individual realise the relative importance of a pension as compared to a car or a pair of Gucci heels. People often discount the future and this is often due to a lack of understanding of quite how important it is to start saving now. An individual who wanted to receive an income of £300 per week in retirement would need to put at least £65 away per week if he started saving at the age of 20, but this figure would need to be at least double if he were to start saving at the age of 40. Individuals often overestimate their pension entitlements and underestimate their retirement income needs.
28. Our Informed Choice agenda, therefore, is a wide-ranging policy area, involving a whole raft of measures including combined state and private pension forecasts, an online retirement planner and other measures all aimed at making sure that individuals understand the value of their savings.
29. We understand that these choices are big and difficult and this is why many people are tempted to put them off to tomorrow. But the choice is just as big and difficult tomorrow, and we want to encourage individuals to make these choices now.
30. In situations such as these, it is clear that education can have a very real and positive impact on people’s lives.
Conclusion
31. When designing government policy, you must keep a number of considerations in mind. Your policy responses need to be specific, they have to be effective and they have to be sustainable. We have limited resources so we need to make sure that our policies target these resources at the people who need them most. We have kept this in mind throughout our government so far, and I feel very strongly that we have plotted as progressive a course as we could, given our circumstances.
32. We have, for example, rejected the call to increase the Basic State Pension since we realised that this offered a terrible deal for women. The vast majority of women have incomplete national insurance records and, unlike Pensions Credit, many of the gains of an increased BSP will go to people whose need is not so great. Had we taken this policy option instead of introducing Pension Credit, for example, we would have caused the poorest third of pensioners to be around £600 worse off. And most of these pensioners are old and vulnerable women.
33. We have come a long way since Beveridge’s time and we do not intend to stop. As you all know, I made a personal commitment to produce a women and pensions report by the end of the 2005 calendar year, and I am anxious for this to be a concrete document, a substantive document and one that engages with the issues raised during this and the many other excellent seminars that I have attended on this issue.
34. In order to help inform our analysis, I have commissioned a detailed qualitative piece of social research that will look into the factors that affect women’s individual savings decisions within the household. This piece of research will be due to be completed by around April next year, and the results will be published and publicly available.
35. I hope that we will all continue to learn and participate in this debate and that we can work together to ensure that as society changes, we change too.