It’s a hard sell to make pensions interesting to anyone under 50. They didn’t interest me either until I started researching them. When I did I realised that they are a lens onto wide-ranging changes in employment, economic inequality
and demographic change, and right now we are in the midst of some of the biggest changes in recent decades. These changes have the potential to reshape the meaning of retirement and to reverse the post-war trends in declining poverty amongst older people, with important implications for women.
For example, a little-noticed element of funding of the £75,000 cap on care costs just announced by Jeremy Hunt is the end of the second state pension (S2P). Such is the complexity of the pension system that relatively few people know what S2P is, even if they receive it. Its demise is one of several reforms announced recently; most eye-catching is the proposed £144 per week universal pension, which will replace the bundle of benefits that currently provide a
maximum state pension of £107.45 per week.
A universal pension that does not penalise people for interrupted careers or periods of self-employment is a good thing, especially for women who take time of the labour market to provide care. Among current retirees, women make up
the majority of those living in poverty. But the major reductions in poverty in older age since the 1970s are largely due to income from what are called second-tier (employment-related) pensions, not the state pension. The end of the S2P, a defined-benefit pension aimed at lower income workers, is just one indication of the crisis in occupational (employer-provided or employment-related pensions).
Many of those who are retired today, including women, are richer because of defined benefit (often final salary) occupational pensions. Yet occupational pension membership in the private sector has collapsed. It fell from 46 per cent in 1997 to 32 per cent in 2011; during the same period membership in a defined benefit scheme fell from 34 per cent to just 9 per cent (ONS 2012). The collapse hit men hard; women actually overtook men as members of occupational pension schemes in 2000/2001. This is because women are proportionally more likely to be employed in the public sector than men, the public sector has both higher rates of pension membership, and most schemes are still defined benefit. Now that the public sector is contracting, women’s gains are in danger of being reversed.
What is in crisis is nothing less than the post-war model of employer pensions. In the private sector it is all but dead, other for the highest paid and chief executives (who are happy to close employees’ pension schemes or switch to riskier and less generous defined contribution models, but who retain ‘gold-plated’ pension for themselves – remember the scandal over Fred Goodwin’s pension?). The model’s decline makes public sector pensions a political target and allows the government to pit private sector workers against public sector ones. Tax relief on pension contributions is currently regressive (meaning it benefits those in the highest tax bands over those who pay 20 per cent tax or less); it will become even more so as defined benefit pensions become of perks of the highest paid in the private sector. The new government employment-related pension scheme NEST includes auto-enrolment but only forces employers and employees to contribute a combined 8 per cent of earnings, far below the average of around 15 per cent that employers contributed to traditional defined contribution schemes, and is defined contribution. NEST will not produce the level of pension for most people that employer-provided pensions did even if it covers a greater number.
Pensions matter to all of us because they underpin the model of retirement that has evolved in the post-war period. Even if this model must adjust to demographic changes, those adjustments should be fair. A universal pension that does not depend on employment will benefit women who perform care work that is unpaid, but will not make up for collapsing levels of membership in employer-provided schemes which have also benefited many, especially younger women. To be truly progressive a universal pension must be coupled with progressive taxation and greater income equality. Otherwise the pension system risks exacerbating already growing levels of polarisation and inequality, including between different groups of women.
Photo: Flickr, from ptmoney.com