Gender neutral state pension starts in UK
But the reality of money in old age is far from equal
From this week, and for the first time in 70 years, men and women will receive their state pension at the same age.
At first glance it seems like a sensible, positive move to put everyone on an even footing.
Beginning on 6 November, men and women will receive their pension from 65 for those reaching that age between now and 5 December. From then on, the state pension age – for everyone – increases to age 66 and then age 67.
But there’s a problem. Actually there are a few. And they’re big problems.
First is the fact that in the 25 years between plans for pension equalisation being announced and being realised, precious little communication was afforded to those whose retirement date would drift, with potentially huge knock-on implications for their finances.
Campaigners, including the vocal and determined Waspi (Women Against State Pension Inequality) group have even sought compensation for failures to adequately inform women about decisions made by successive governments over when and how to balance the retirement age.
In a bid to save money, a rapid acceleration to the female state pension age caught out huge groups of women, particularly those born in 1953. Depending only on when you were born in that single year, the age you received your state pension as a woman could vary by as much as a year and nine months.
It meant a difference of thousands of pounds and, for those who weren’t expecting a shortfall, placed some women in severe financial straits.
But don’t make the mistake of wondering if this is just a small group of people complaining that they don’t get to put their feet up as early as their friends.
The historical gender difference in state pension age had gone some small way to alleviate the other, much bigger, issue around women’s pensions that isn’t going away any time soon.
Europe-wide, pensions consultancy Mercer calculates that the gender pay gap is about 16 per cent, but its knock-on effect on women’s retirement savings means the pensions gender gap is 40 per cent.
As Sarah Pennells, founder of women’s finance website SavvyWoman.co.uk, puts it: “Even if women had been given the full 15 years’ notice of a rise in their state pension age, it would have only helped those who could afford to save extra to make up the difference. And many of these women couldn’t.”
Maike Currie, investment director at Fidelity International, warns: “The pension system is relatively equal if people follow the same working pattern from age 20 to retirement, but they don’t.
“Women are more likely to have fragmented careers, be self-employed or work flexibly during their working life as they continue to bear the brunt of the childcare or take a career break to care for sick or elderly relatives.
“Of course, these factors are increasingly affecting men too, however, the average women’s pension pot is already much lower than the average man’s so women need to have the ability to catch up. As the Cridland report pointed out, in the first year of retirement women are expected to have 25 per cent less income than their male counterparts.”
Few would argue that eliminating gender discrimination, including by equalising the state pension, is anything but positive. But the change will undoubtedly make the gender pension gap worse.
By the time women reach the age of 50 they have an average of just half the private pension savings that men do – about £56,000 compared with £112,000, according to research from Aegon.
To catch up, a 50-year-old women would have to pay in an extra £360 every month until retirement.
Even at age 30, women need to contribute an extra £21 a month to close the gap on men. It’s little surprise that half of all women aren’t sure they will be able to retire comfortably, compared with only a third of men.
By coincidence, all this is happening in the same week as equal pay day. Saturday marks the hypothetical day in the year when women stop earning in like-for-like comparison with men’s salaries, according to the Fawcett Society.
“While limited progress is being made to close the gender pay gap, other factors impacting women’s ability to save adequately for retirement including career breaks to raise a family or to care for elderly parents, aren’t going anywhere,” says Steven Cameron, pensions director at Aegon.
“The equalisation of state pension age, and future planned increases are a further prompt to women to think about how much they’ll need to save privately for a comfortable retirement.”
Currie adds: “As women, we might not always have much control over things like the gender pay gap or equal pay day, and we can’t always control whether we could get that elusive pay rise or promotion. But we do have control over our personal finances.
“Make sure your savings are working hard enough by taking the appropriate level of risk. And whatever you do, save into a pension. Our research found that if a woman contributed an extra 1 per cent of her salary to her pension than she could close the gender pension gap by retirement.
“It’s worth remembering that tax rules dictate a limit to how much you can put into a pension each year. While ‘carry forward’ rules mean you can take forward any unused pension allowances from previous years, you can only contribute as much as you’ve earned in a given year up to a maximum of £40,000.
“So while you’re in work and earning, it’s important to put as much of any spare cash you have into your pension to ensure you don’t spend your golden years in poverty.”