Rising pension age short-changes women

By Maike Currie, 25 October 2010

Last week, I wrote about how European legislation could mean a blow to the retirement income of men. This week, it seems it's women pulling at the shorter end of the pension stick.

In case you missed it, I described an opinion handed down by the European Court of Justice stating that it is legally inappropriate to link insurance risks to a person's gender. If ratified, this could mean a major shake-up of UK pension annuity policies, which currently offer men better annuities than women for the same sized fund, because men are likely to die sooner.

It looks as if Mr Osborne is attempting to right this wrong by dealing an equivalent blow to womanhood, by raising the state pension for both genders to 66 by 2020 – four years earlier than planned.

The new timetable announced in the comprehensive spending review envisages a later increase in state pension age for men and a faster increase for women. Depending on your age, that effetively means some men will be gaining money on their pension, while some women will lose out. I should point out that the fairer sex already, on average, have much smaller pension pots than men because they earn less and because their careers are often interrupted by motherhood.

According to research by Towers Watson the biggest losers are some of the women born around 1954. A woman born on 5 April 1953 will still be able to claim her state pension when she is just 62 years, 11 months and one day old. A woman born a year and a day later will have to wait until she is 66. The extra three years of income could be worth more than £15,000 on the basis of the Basic State Pension alone - and could be much higher for women with substantial entitlements to the state earnings-related pension (Serps) or its successor, the state second pension (S2P).

Rash Bhabra, head of corporate consulting at Towers Watson comments: "Before the election, the new Liberal Democrat Pensions Minister said he thought it would be illegal to widen the gap between male and female state pension age, even temporarily, as the coalition originally proposed."

"Has the policy changed because the lawyers agreed with him? Either way, some men born between 1951 and 1953 have just gained thousands of pounds, compared to the proposal in the coalition agreement, while women born a few years later have lost money."

Research by Fidelity further substantiates the fact that women have been left short-changed by the government's announcement. The investment manager found that a 45-year-old woman turning 60 in 2025 will miss out on around £46,976 in basic state pension as a result of the changes. This is based on the current basic state pension of £97.65 per week, rising by 2.5 per cent each year.

Based on Fidelity's calculations, she would need to save an extra £175 per month from now for the next 15 years to have a pot of £49,681 (based on a 5 per cent growth rate), giving her the flexibility to retire at the current state retirement age of 60 if she wants to. This is on top of any savings she might need to supplement the basic state pension.

For a 30-year-old, the retirement age would be 68 on the basis of the Labour government's proposed timetable. This means she would need at the very least a pot of £93,048 to cover the state pension she will miss out on from age 60. However, because she has longer to save, she would need to put away £115 a month to save a pot of £97,649. So much for "all in it together..."

Still, I mustn't get too worked up. Increasing life expectancies mean people are now expected to live almost two years longer than they were when the last government said the state pension age should rise to 66 by 2026. Later retirement is reality - whatever French unions may think - and the bottom line is that if you want to retire earlier, you're going to need to boost your private savings.

visible-status-Public story-url-Comment_29October.xml