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Women bearing the brunt of the financial fallout from state pension reforms

Tuesday 8th August 2017

Written by Martin Upton

From the moment the True Potential PUFin Centre launched ‘Managing My Money ‘ - its first free online course - in 2014 it became abundantly clear that pensions are the greatest personal finance issue in this country. And the postings by learners revealed that women had particular grievances about the impact of the raising of the state pension age. Now a report by the Institute for Fiscal Studies (IFS) has provided startling information that substantiates these grievances.
The IFS study looks at how the incomes of women in their early 60s have been affected by the increase in the state pension age. From 2010 this has been increased in stages from 60 years and will reach 65 years in 2018 and 66 years by 2020. So clearly women in their early 60s have borne the brunt of the financial impact of these changes, finding that their expectations of a state pension at 60 years have been scuppered.
The IFS found that that between 2010 and 2016 those aged 60 to 62 lost, on average, £74 per week in state pension and related benefits. This has saved the government some £4.2 billion per year – good news when it comes to reducing the state’s budget deficit but bad news for those women who have lost out.
The study also found that the earnings from employment of this age group had increased over the same time period – understandably, with some women opting to work more hours or deferring retirement to compensate for the loss of income from state pensions. However, even when taking these higher earnings into account 60 to 62 year olds have ended up £32 per week worse off.
It is clearly no surprise then that the study also found that the proportion of 60 to 62 year old women in absolute poverty increased from 15% to 21% between 2010 and 2016.
There is no doubt that the impact of the raising of the state pension age and the phased elimination of the differential between when men and women can get their state pension is inevitably affecting women in their early 60s particularly badly. By contrast the impact on men is less pronounced.
This whole episode does though have some lessons for all of us.
First, the state pension is not a formal contract between the state and the individual. It is not like a defined benefit occupational pension scheme. State pensions are paid out of tax and other government revenues and not by drawing on a personalised state pension ‘pot’. So if a government has to rein in its spending it is free to do so through being less generous with its state pension.
Second, given the state of government finances and growing longevity it was inevitable that the state pension would have to rise. Additionally the previous, and long-standing, difference between state pension age of 60 years for women and 65 for men was an anachronism and, arguably, inequitable. Tackling these issues was always going to have unequal impacts on different genders and age groups. Women in their early 60s can certainly confirm this.
Third, no-one should rely on state pensions for a good income in retirement. Everyone should plan for an adequate income through their own pension plans – be they occupational or personal pension schemes or alternatives, like Lifetime ISAs. Perhaps state pensions should be viewed as the ‘icing on the cake’ when it comes to retirement income rather than the cake itself.
*Martin Upton is Director of True Potential PUFin

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