Today is pension equality day, but too many people still don't know when they can retire
So what is being done to rectify this terrifying knowledge gap? Not nearly enough
Gender equality wasn’t supposed to be financially painful for women. Yet that’s how it feels for many who have been experiencing a sharp rise in the female state pensionable age since 2010 which, as of today, is finally brought into line with the male age of 65.
Research by the Institute for Fiscal Studies last year found that the increase in the pension age has put upward pressure on the poverty rate of women in their early sixties. And a lobby group called Women Against State Pension Inequality (WASPI) has thrust the issue onto the agenda of journalists and MPs, not least the Labour leader Jeremy Corbyn.
The basic case for equalising the state pensionable age is not particularly controversial. The 1940 Old Age and Widow’s Pensions Act introduced the 60/65 disparity in favour of women in an era of entrenched gender discrimination, when women were generally expected to devote themselves to raising children at home and men were seen as the main earner of a family. The earlier pension age for females was conferred in an environment of extreme disadvantage for women in the workplace, when they tended to earn far less and accumulated far fewer years of social insurance contributions.
But the structure of the labour market has changed dramatically over the past 70 years, with many more women in jobs. As recently as the early 1970s, the female working age employment rate was just 55 per cent. Today it is at 71 per cent – a record high. The male employment rate, by comparison, is 80 per cent.
Of course women continue to face disadvantages and discrimination in the workplace when it comes to pay rises and promotions, particularly for those who return after having children, but there are few who argue that a lower female state pension age should be used as a partial compensation for all of this.
The fairness question over pensionable age equalisation relates to the handling of the transition. Did successive governments do enough to inform women that the change was coming, to enable them to plan for it? Was the transition, which was accelerated by the coalition government in 2011, too rapid? Should all women who have been affected be compensated? Or only those who are worst off? These are questions on which reasonable people can disagree.
Yet it would be unfortunate if this debate were to crowd out discussion of other, deeper-set problems with UK pensions. One of the reasons the state pension gender equalisation debate gets attention is that it is relatively easy to understand. But bigger injustices now actually lurk in the sphere of private, rather than state, pensions.
The introduction of “auto-enrolment” of workers into “defined contribution” workplace schemes in 2012 was a good reform, using people’s natural inertia to nudge them into saving. The results have been impressive, with the proportion of employees covered shooting up from half to three-quarters. But, on its own, auto-enrolment was incomplete and might even potentially prove counterproductive.
This is because there is rampant ignorance and confusion among the public about how the kind of pensions onto which they are increasingly being enrolled actually function. A recent survey found that around a quarter of people aged 55 and over admit that they don’t know how such pensions work and never check their pots. In a speech in 2016, even the Bank of England’s own chief economist, Andy Haldane, confessed to being baffled by pensions. “Conversations with countless experts and independent financial advisors have confirmed for me only one thing – that they have no clue either,” he added.
So what is being done to rectify this terrifying knowledge gap? Not nearly enough is the answer.
The government has been hesitating on creating a promised “pension dashboard” so people can monitor all their pension pots, from various employers, in one place, and with consistent information on projected income streams in retirement, enabling them to plan for their retirement accordingly. The pensions industry has introduced a proposal for simpler and less confusing annual pension statements but is still, disgracefully, dragging its feet on the transparent disclosure of fees for fund managers.
We need a much broader government-sponsored financial literacy drive, to introduce people to the basics of compound interest, inflation, portfolio diversification, annuities and the fundamental importance of keeping costs down.
We do not just have gender equality in the state pension age. There is also broad gender equality in a paralysing sense that pensions are mysterious and out of our control. All of us – women and men alike – need urgent assistance to rectify that.