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Baroness Bakewell
To ask Her Majesty’s Government, in the light of the new single-tier state pension, what provision they have made for informing women in their 50s of their pension expectations.
Baroness Bakewell (Lab)
My Lords, I am delighted to launch this topical Question for Short Debate arising from issues that have currently swept the country and the media involving the transition to new pension arrangements. This is a small gathering, but a distinguished one, and I look forward to hearing the Minister’s response to the issues that we have to raise.
The population is ageing; we know that. Life expectancy is currently 81 in the UK, and we now expect to work longer than we once did. Retirement will come later than it used to. We also believe in equality, so it is quite right that women and men should retire at the same age. This is all right and proper, and thoroughly understood by the population of this country. Legislation towards later and equal pensions was begun in 1995 and amended in 2011. The transitional arrangements towards that desire have, however, been a disaster. Through incompetence and faulty communications, many people, mostly women, have been left totally in the dark about what to expect and, as a consequence, suddenly presented with hardship, injustice and what some of them, writing to me, have called theft. I will be giving evidence of that in just a moment.
First, the changes to the state pension to be rolled out in April next year promise a fairer deal for women, but the new figures show that of the 400,000 expected to claim the new state pension, only 20,000 women will get the full flat rate of about £155 per week. There are reasons for this. Many women will not be reaching the state pension age over those years. They once expected to, of course—they expected to until quite recently. It has come as a shock to some 700,000 of them that they will not only not receive their pension until later but, as a consequence of this delay, will be missing out on even more than they had expected.
Complicated matters get more complicated. I put it to the Minister that serious issues of communication with those affected by the changes must be addressed— and urgently. The changes begin within a year. How much immediate contact is the DWP making with those whose features depend on these changing arrangements? What advice systems exist, and what information centres? What initiatives are in place to respond to the needs of these often distraught and deprived women? Why women? Women outnumber men in the pension population, and only a minority of women reaching state pension age have been entitled to the full basic state pension. As author John Macnicol defines it, we are talking about poverty among older women.
We know that transitions can go wrong because they already have. The move to bring forward women’s pension age towards that of men has left some 700,000 women who were on the brink of reaching what they believed was pensionable age completely bereft. They have come together as a powerful lobby—Women against State Pension Inequality, or WASPI—and are finding that their cause is met with sympathy and outrage when they explain their plight.
Many dozens of them have written to me. Let me give some examples of their distress.
“I started work at the age of 15, I have never claimed a penny benefits and worked continually until reaching 57, when because of a heart condition I took early retirement on the understanding that my pension would be forthcoming in the next few years. I have never had any communications from the government about the changes”.
Another writes:
“I resigned my teaching career to care for my husband when he was diagnosed with terminal cancer. On his subsequent death at 60 years of age I have found myself with half his teacher’s pension … and no state pension at 60 as I had planned for”.
Liz writes to me:
“I started work—part time—when I was 13 and I have always worked. Throughout my working life I understood that I would be able to take my state pension at the age of 60 and planned towards this. I now have to wait until I am nearly 66. The short notice given has made it impossible to save enough to cover the shortfall … The complete lack of notice given for a specific group of women … means that they have been treated very shabbily”.
Karen writes to me:
“I am a divorced woman of 60: I have no option but to claim ESA as I cannot work due to health issues … If it wasn’t for the fact the council are paying me housing benefit I would literally be on the streets”.
Here is a man’s voice:
“So let me get this right. We expect women to have time off to have children, earn on average 80% of what men earn, and now without fair and proper warning have imposed on them to work another 6 years. Is this the price of equality for women?”.
There are many more examples. One writes:
“I have worked as a nurse since the age of 18”.
Another writes:
“I worked solidly since I was 17”.
What emerges from those letters is that these women, deprived suddenly of their expected pensions, are often ailing, looking after an ailing partner, caring for a much older parent or may themselves be frail. Many are made redundant and, at the age of 58 or 59, are in no position to find other work.
One wonders what William Beveridge, architect of the nation’s national insurance project, would make of this unexpected occasion of want and injustice. Existing plans show a complete lack of understanding of the reality of these women’s lives. They are not cheats or scroungers; they are honourable citizens who, after a lifetime’s work and often 40-plus years of contributions, are seeking the pensions to which those contributions entitle them.
Many—almost all—of the women complain that they were not informed of the changes. The department made modest protest that it had informed them. Steve Webb, the former Pensions Minister, defending the record of communications before the Work and Pensions Committee, added to his evidence:
“Did we miss some people? Probably, when you move house do you tell the DWP and tell them your new address?”.
Some people? The department missed a large part of 700,000 women. This matter of communication of pension changes to those who are entitled is still in play. The WASPI group has raised a petition of more than 40,000 signatures. Those people want their case reviewed and compensating considerations brought in to redress the injustice.
The arrival of the new single-tier pension is meant to be cost-neutral, but it is not likely to be so. The Government must examine the provisions to see whether within their revenues they cannot find ways to accommodate the needs of those women. Pension changes read as bold and logical when they are set out on paper, but they all involve transitional adaptations. That is where the Government continually fall short of what is expected. The same applies to the recent freedoms given to pensioners to access and spend their pension pots and annuities. The proposal sounded like a new freedom, and was greeted as such. Yet we already hear of plenty of scams as perhaps naive older people are offered unrealistic promises by unscrupulous operators. Announcements of policy are all very well, but they are only the start. Will the Government undertake to remedy the many shortcomings to their communication with, and advice to, the pensioners of this country?
Baroness Jenkin of Kennington (Con)
My Lords, I am extremely grateful to the noble Baroness, Lady Bakewell, for raising this issue—just in the nick of time for me, as it happens, as I have another four days left in my 50s. We can only just scratch the surface of the subject of many women’s perceived and actual financial insecurity, especially as they approach retirement, but this is a very good place to start. Much has been said over recent years about how the financial protection enjoyed by pensioners, despite fiscal consolidation, contrasts a little too sharply with that for young people, as my son, who is in his 20s, reminds me on an almost daily basis. Instead of Britain being “no country for old men”, it should perhaps be described as a pretty good country for old men. Final salary pension schemes, after jobs for life, are now very much consigned to history, but many male baby boomers and their families still benefit—and I do mean old men.
Research from the Centre for the Modern Family, whose support in helping me to prepare for this debate has been much appreciated, shows that women entering retirement seem to be in a very different place. There are cultural reasons for this, and it is not due just to state and other pension arrangements, as I hope to make clear. The Pensions Act 2011, which gradually equalises pensions ages, has affected a significant number of women. DWP figures suggest 2.1 million women will see their state pension age increase by one year or less, with a maximum increase of 18 months. This is, of course, relative to the timetable set by the Pensions Act 1995, which affected a group of women born over a three-year period whose state pension age was set at between 60 and 63. However, all women affected by accelerated equalisation will reach the stated pension age after the introduction of the new state pension, which is more generous for those women who historically did poorly under the current system because of lower average earnings and part-time working.
The 2011 changes responded to increases in life expectancy that were faster than projected, and the price tag for not revising the 1995 timetable was a cool £39 billion. Also, the Institute for Fiscal Studies has shown that the rise in women’s state pension age since 2010 has been accompanied by increases in employment rates for the women affected. Going with the grain of this, the Government have abolished default retirement age for all workers and extended the right to request flexible working to all employees. As we are all too well aware, time sovereignty can be incredibly important to women, perhaps particularly at this stage of life when they may be acting as sandwich carers to grandchildren, disabled adults and often frail elderly parents and relatives. Life may only “work” for them if they have this flexibility, as they often still have an enormous amount to contribute to the labour market but cannot fit that contribution into the traditional nine-to-five slot.
The Centre for the Modern Family research, analysing the changing relationship between the family and the workplace, found that working later is the new norm. Remaining in work past the current state pension age is now an established concept among the general public, but retirement planning is left late. The majority of workers over the age of 55 have either not planned their retirement or wish to continue working. However, there is a big difference between men and women in terms of this latter category; while more than one-third of men—38%—want to carry on working because they like their jobs, barely more than one in 10 women feels this way. Financial education and advice provided through services such as the Money Advice Service and Citizens Advice are crucial to encouraging people to engage with retirement planning. Employers could also play a greater role in advising staff on their pension options, if they do not fall foul of regulations by providing financial advice that they are not qualified to offer. Perhaps the Minister might have some advice on that.
Obviously, the Government must inform recipients of the state pension on when they will be eligible and what they can expect. I think that I am right in saying that letters were sent out from DWP to addresses, current with HMRC at the time, to reach women affected by the 2011 changes at least two years before they reached state pension age—although, as the noble Baroness points out, it has not been by any means perfect. While this advance notice is important, planning and saving for retirement have to start far earlier than research suggests is the current social norm. Scottish Widows, for example, has been studying women’s retirement prospects for over a decade and has consistently found, year on year, that women lag behind men in saving adequately for retirement. While there are a number of reasons for this—and of course the gender pay gap must bear some responsibility—a problem remains specifically with women’s understanding of long-term financial savings products. Again, research shows that 43% of women still say that they have little or no understanding of individual pension savings, while 71% of women do not know what pension pot they will need to secure the retirement income they hope for. Pension providers, employers and individuals themselves all have a role to play to address this issue; it must become the norm for everyone to consider the size of their pension pot and their financial aspirations for retirement at an earlier stage.
This year’s research is beginning to provide some reasons for optimism, as latest figures show that 52% of Britain’s women are now saving adequately for retirement, but projections suggest that many women will not have a comfortable and enjoyable retirement, and may spend their later years worrying about their financial situation. Some 28% of retired women say that the income that they received once retired was less than they had expected, and 25% of females aged 30 to 49 are non-savers, compared to 15% of men. This is not all down to uncertain working patterns; only 19% of women on permanent contracts are now non-savers. However, this number jumps to 35% of self-employed, or women who work freelance. More than half of the UK’s self-employed or freelance working women—56%—are undersaving compared with 45% of those on permanent contracts.
Ultimately, women need to be able to make better informed decisions. Information, whether from the Government, pensions providers or other trusted sources of advice, is indispensable, but many women feel defeated from the outset in understanding what is being given to them in this regard because of their antipathy to financial and, more broadly, mathematical information. I was recently interviewed for a publication called The Fear Factor, which aimed to highlight how otherwise educated women can feel ill equipped, by dint of their sex, to understand maths and money. Poor maths skills and inadequate financial management skills are linked, and women are peculiarly willing to admit to being not just bad at maths but also anxious about figures, and not very good with money. Such attitudes—I am afraid that I am speaking to myself, particularly about maths—need to be challenged.
The Fear Factor project is run by Shirley Conran OBE, who wants to liberate women from these fears in the same way as she aimed to liberate women from housework in the 1980s. She is arguing for a national campaign to expose the maths myth that it is natural for women to be daunted by maths and they need men to manage their money because they lack the necessary maths gene to make sense of it. Ms Conran has been engaging with the Department for Education, as her focus was mainly on young women, but I think that the campaign needs to reach right up into the age range we are discussing today. Will the Minister consider meeting Shirley Conran and her team to discuss how to help women of pensionable age to gain mastery over their fears in this area so that they are able to approach retirement with more confidence and foresight?
Lord Stoneham of Droxford (LD)
My Lords, I thank the noble Baroness for initiating this debate and congratulate her on her ongoing efforts to campaign on behalf of women disadvantaged in our pension system. It is the first debate in which I have engaged with the noble Baroness, Lady Altmann, and I congratulate her on her appointment and wish her well—and wish her well in reply to this debate.
We know that women are hugely disadvantaged when it comes to pensions. Lower earnings and lower contributions have contributed to that disadvantage, and the trouble with pensions is that problems build up and are compounded. Change in pensions is always very difficult. We have seen that over the past five years, with the unravelling of many complexities that have built up in the past. We have had to deal with the economic constraints that have made it more difficult in helping that transition, and we have had to recognise that life expectancy is improving and that there is pressure for equality in pension ages.
Let us remind ourselves of the principal benefits of the new single state pension, which will be coming in in April 2016. The first benefit is that it is a much simpler system, and anyone who eventually has 35 years in that system will get a flat-rate pension and will know exactly what it is going to be. There are huge benefits from that certainty, which can help in planning and saving. We have got rid of the complexity, or at least we will, of the existing system of contracting out or contracting in.
A second advantage of the system, and the reason it was supported, is that it aims to improve outcomes for people who do not do well under the current system. Those are mainly women, particularly older women, whose participation in work and lower earnings have disadvantaged them. That has been helped by the retrospective re-evaluation of credits for contributions. The other group which benefits from the single state pension is the self-employed, a growing proportion of our working population.
The third advantage of the single state pension is that auto-enrolment can work only if we reduce means testing. With the state pension at £119, and with means-tested income just over £150, that means that any pension over £35 is immediately clawed back.
However, during the transition, there have inevitably been complications. There has been a misunderstanding, as there always is, that our pension system is contributory. That means that if you have not contributed for the full 35 years, even with credits, you do not get the full flat-rate pension. To do otherwise would be unfair on those who have made those contributions. Then there is the complication of contracting in. Those with the state pension will still get it, but those who have contracted out will get less. Many of them have other pension schemes, and it would be unfair if they, having paid lower contributions, got the same as those who paid the full contributions.
There is a third issue, which was complicated during the coalition Government by the Pensions Act 2011: the raising of the pension age. I accept that the notice given was probably too short. It would have been much more helpful to have a longer transition, but there were demands on the finances that insisted that it went ahead. Everyone who has been disadvantaged by the change, as the noble Baroness, Lady Jenkin, said, will have the benefit of the new single-tier pension, so advantages will accompany that change as well.
This debate is largely about the lack of information. In the pension field, information is never enough. One of the problems is that half the time people are not listening, because they do not want to. Sometimes they do not want to face up to the reality of their low savings in pension; it might make their working lives pretty miserable if they did. However, we just have to keep working at it.
There was a problem with the 1995 Act and the information that was given at that time. The 2011 changes suddenly stirred up a lot of people when they were told that the age was going up even more because they had not been properly informed of that first change. In the last few years, fortunately, at least we have had a good period for employment in terms of employment growth, which has helped people to come back into the labour market. We know that a lot of people who otherwise might have retired have stayed in the labour market, which, hopefully, will eventually be good for their pensions.
As we look at the efforts to inform, we have first to remember that we have been able to inform people only since March 2014, when this legislation went through. I understand that 500,000 personal letters have been issued where people asked for information, and, as someone who has delayed his state pension, I have to say that I recently rang up and it worked absolutely perfectly. I even found that I had another £30 from the state earnings-related pension scheme that I did not expect to have, and I had a letter by return of post. So it certainly worked for my sample of one, but clearly we have to do much more. Maybe the Minister could confirm the number of personal letters, because the key is to get people to register and go in and, as they start to think about their retirement and their pension, find out exactly what their pension position is.
I note in the Library papers that last autumn my colleague Steve Webb produced a detailed communication plan. I thought that it was actually quite good. Maybe the Minister can tell us the progress on it. Certainly a lot of work was done, although I accept that the situation can never be perfect.
The coalition Government initiated a number of top-up schemes for contributions. I know that not everyone can afford this, but there are voluntary contributions to top up this year’s pension. There is the possibility of delaying your pension so that you can take a 10.6% top-up, which lasts until April next year, and there is the top-up annuity, which has not been given a great deal of publicity but is available until April 2017, which, with the appropriate lump-sum payments, can lead to an extra £25 on your pension.
Obviously, the key is personalised communications. We want eventually to build up to a situation where people are getting communications 20 years, 10 years and five years before they retire, a bit like what is beginning to happen in the health service, where you are reminded about having checks and so on regarding your health. Similar things should be happening in the pension field as well. There is great scope for government departments to break down some of those silos. Why is the Inland Revenue, when it puts out its tax demands, not putting out reminders about people finding out about their pensions? Similarly, the health sector is sending out its letters. Some of these communications could be combined with promotion for what is happening in the pension field, as a way of sending money and increasing the number of communications. Inevitably, you just have to keep at the education effort to get communications through. Pension reform is not easy, but I think the single state pension will be seen as a great landmark for pension reform in the years to come.
There are just a couple of specific points that I want to ask the Minister about. We are talking about women being disadvantaged in pensions. There are two issues that are immediate at the moment. First, any delay in auto-enrolment affects women proportionately more. Could we have some details about delays that are already happening in auto-enrolment, and some assurance that as they go for this employment levy for apprenticeships the Government are not going to use that as a further excuse to delay the implementation of auto-enrolment?
Secondly, I come back to a point that I raised in a Question in the House a week or two ago: the whole issue of mobile portable pension pots. This is very important to women who are on low earnings and change jobs regularly; they need to be able to move their pension pots easily and together. I understand from the Minister’s reply that the Government, despite having had a policy laid down by the previous Government in legislation, are not contemplating implementing this until 2018. I hate to think how many pots will be available by then for people changing jobs in the interim. This is an issue that is set down in legislation; we should get on and do it because failing to do so will just build up further problems for women in the pension field.
With the single state pension, we have delivered on Beveridge’s principles. We have a pension approaching 20% of state earnings and a proper platform for private pension provision. Through the reforms of the previous Government, we have adjusted for life expectancy. We have automatic enrolment for private savings and, above all, we have the triple lock which improves and defends women’s pensions.
Lord McKenzie of Luton (Lab)
My Lords, I thank my noble friend Lady Bakewell for initiating this short debate and for bringing to our attention some of the distressing communications she has received in her postbag. I also thank the noble Baroness, Lady Jenkin, and the noble Lord, Lord Stoneham, for their contributions. We are a small but select band on this occasion.
The focus is the new single-tier state pension, which is due to come into effect in April 2016, and in particular how it is being communicated to people about to reach state pension age. This is brought into sharp focus as its introduction looms and the spotlight falls on the detail of what the changes mean to individuals. The issue is also to an extent entangled with the changes to the state pension age and the different ages at which men and women will gain entitlement to a state pension. It is also relevant to the changes to private pension provision and the new freedoms concerning access to pension pots if decisions are to be based on robust information about future income in retirement. It is also relevant, as we have heard, to progress on auto-enrolment.
The single-tier pension has been promoted as the route to speeding equalisation of pension outcomes between men and women a decade earlier than would be achieved under the 2007 legislation. Despite significant improvements under that legislation—in particular, the reduction of the number of years needed for a full basic state pension to 30, and more generous credits for carers—we know that women have continued to be at a disadvantage compared to men. They have been less likely to be in work, more likely to work part-time, often in multiple jobs, and more likely to be on low pay and therefore historically inherently less well treated by the mechanisms determining state pension entitlement. We know that life expectancy is increasing and that life expectancy for women is greater than for men. The majority of today’s pensioners are women, and this is projected to be the case into the long term.
Therefore, the prospect of accessing a new single-tier pension with the promise of greater simplicity and a shorter period before an equalised outcome with men is obviously to be welcomed. These changes are driven by the ending of the earnings-related state second pension and because a new single-tier year is worth more than the current basic state pension year. However, it is not all good news: 35 years of contributions are needed for a full single-tier pension and there are restrictive rules concerning reliance on a spouse’s national insurance contributions.
Despite the new arrangements offering the prospect of eventually leading to a simpler, more understandable pension system, the transition certainly has its complexities. We should acknowledge that the Minister is on record as recognising as an early issue on taking office that more needed to be done to communicate what these changes mean, and we look forward to an update when she replies.
The Minister will have heard from my noble friend about the confusion, frustration and disappointment that abounds on this issue, especially among women. That confusion is not only about what level of pension will be payable. There is frustration about the precipitate changes to the state pension age. These issues potentially make more difficult the choices, usually falling on women, about leaving employment to take up family caring responsibilities, for example.
My noble friend is right to challenge whether more could be done to encourage realistic expectations of what will flow from the single-tier pension. In this context, it is helpful to remind ourselves of the overall impact of the proposals. The DWP’s impact assessment produced for the Pensions Act 2014 showed that over the long term the overall expenditure on pensioner benefits from the state is projected to be lower than under the current system. It is broadly the same as the current system in overall costs through to 2040 but with savings thereafter. This includes pensions as well as pensioner benefits, pension credit in particular. However, we should not forget that the Exchequer will gain massively from the ending of contracting out next year and the consequent increase in national insurance contributions. This benefit was due to be applied to meet the proposed changes to the funding of social care, and perhaps the Minister will tell us whether that is still the case and how it is being put into effect.
The very helpful Library briefing reminds us that the Work and Pensions Committee concluded that the overall impact of the reforms, whether people gained or lost, is likely to be marginal. Reference is made to a Joseph Rowntree Foundation report which concluded that gainers from the new system will include the self-employed and those not qualifying for the additional state pension prior to 2002, but the conclusion is that overall and in the longer term the new single-tier pension will be less generous than the current system for most people. Do the Government accept this analysis?
Of course there are a host of reasons why from April 2016, contrary to many people’s expectations, there will not be a single-tier pension of £155.65 per week for all pensioners. For a start, the single-tier pension will apply only to people who reach state pension age on or after 6 April 2016 and, because state pension ages will not have been equalised by then, the starting point for a man is those born after 6 April 1951 but for a woman it is those born after 6 April 1953. Not all will have achieved the required number of national insurance contributions, by payment or crediting, for a full pension, which is to be increased to 35 years, and if at least 10 years’ contributions have not been earned then there will be no entitlement at all. Not all will have the opportunity to close gaps in their national insurance record, and those who have been contracted out of the additional state pension will suffer a deduction which can be made good in whole or in part only by post-April 2016 payments before state pension age. Some will have a starting amount under the current pension rules which provides for a protected payment in the new scheme.
These are just some of the factors which will determine entitlement or lack of it. Recent press reports, which were referred to by my noble friend Lady Bakewell, highlight the impact of these issues on the early years of the scheme. It is suggested that of the 400,000 expected to claim the new state pension next year only 20,000 women will get the full rate of £155.65. Do the Government accept these figures? What is the Government’s analysis of the actual reasons why individuals are not receiving the full rate?
The National Federation of Occupational Pensioners reinforces the point that its members are confused about which system they are in. It also points out what it says is an anomaly—that the triple lock applies to the entirety of the single-tier pension, whereas it applies to just the basic state pension under current arrangements. The federation also emphasises the difficulty which the increases in the state pension age have presented for women born in the 1950s.
As the noble Lord, Lord Stoneham, said, in October 2014, the previous Pensions Minister, Steve Webb, launched a service to provide individuals with a written estimate of what they might expect to receive under the single-tier pension. This is to be available for those reaching state pension age between April 2016 and August 2021. Will the Minister tell us how many such written estimates have been requested and provided to date? Will she say whether the information provided contains a comparison with the existing pension system and whether the projected levels of pension could be enhanced by, say, the payment of voluntary national insurance contributions? The papers we have provide further details of the single-tier communication strategy. Will the Minister update us on progress on the strategy and, in particular, on whether phase 3 is under way and on schedule?
Pension issues can be complicated, even for the sophisticated practitioner, as the noble Baroness, Lady Jenkin, acknowledged. It is clear that the Government are failing to communicate effectively with potential pensioners on these very significant changes to the system. My noble friend Lady Bakewell should be congratulated not only on bringing this issue before us today but for her continual support for those women—WASPI—whom this Government are letting down.
The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)
My Lords, I thank the noble Baroness, Lady Bakewell, for raising this issue once again and for securing this debate, to which it is important that I respond.
The debate highlights two integrated areas of the Government’s reform programme: the state pension age changes and the new state pension reforms. I hope to address some of the points raised by my noble friends here. I reiterate, as I have many times, that I have sympathy with the women who still feel aggrieved about their state pensions. I hope my remarks today will clarify some issues about which there has been much commentary. My aim has always been—and remains—to help people, where I can, to achieve better pensions. I hope to be able to steer future policy in positive directions to make pensions work better for people, both today and in future years.
First, I will address concerns, which the noble Baroness, Lady Bakewell, among other noble Lords, particularly focused on, that the women affected by state pension age changes were not given adequate notice of the 1995 state pension age equalisation. I recognise that there has been much criticism about the Government’s efforts to notify the women affected. However, I will explain more about what I have been told the department did on this matter.
State pension estimates, issued to individuals on request, made the 1995 changes clear. The DWP’s state pension estimates have been providing individuals with their most up-to-date state pension age since 1995. The department does not have figures before April 2000, but since then it has issued more than 11.5 million personalised state pension statements to people who requested them. We continue, as noble Lords have said, to encourage people to request one as part of our ongoing communications.
To raise further awareness of the state pension age equalisation under the Pensions Act 1995, in July 1995 the department issued leaflet EQP1a, Equality in State Pension Age: A Summary of Changes, to advise the general public on the changes. The DWP ran a pensions education campaign in 2004, which included informing people of the future equalisation of state pension age. That campaign included: advertising features in the press and women’s magazines; a “women’s pensions pack” containing leaflets for women about changes in state pension age, made available through the Pension Service; direct mailings targeted specifically at women, highlighting that women’s state pension age is changing; sending state pension forecast letters with leaflets explaining the changes to women’s state pension age to those who requested them; and developing an interactive state pension date/age calculator facility on the Pension Service website.
A 2004 DWP report, Public Awareness of State Pension Age Equalisation, reported its survey findings that 73% of those aged 45 to 54 at that time—in 2004—were aware of the changes to women’s state pension age. In addition to this, all those affected by the 1995 Act changes were sent letters from April 2009 to March 2011 using the address details we had—I admit that we may not have details for everybody, but what else could we do? It is therefore difficult for the Government to accept that people did not know that their state pension age has risen from 60, and it is not accurate to try to suggest that this is a six-year rise. The change is a maximum of one and half years.
The second concern, rightly expressed by noble Lords, concerns the short-notice changes made in 2011. Following the 2011 Act, the DWP wrote to all those directly affected individually to inform them of the change to their state pension age. By this point, state pension age was already in the process of rising. This involved sending more than 5 million letters to those affected between January 2012 and November 2013, which was a major exercise.
I will move on to the rationale behind the state pension age changes. The changes were made to ensure the affordability and financial sustainability of our state pension system, on which so many millions in the population rely. They were also of course required to remove the long-standing inequality between men’s and women’s state pension age. The previous arrangements meant that, for those reaching state pension age in 2010, women would spend on average over 40% of their adult lives in receipt of state pension, while men would receive their state pension on average for only 32% of their adult life due to their shorter life expectancy and the fact that they receive the state pension later. This was clearly unsustainable and was considered unfair by many at the time—for example, by men who were paying national insurance contributions for more years while women received their state pension earlier than them.
Parliament did not consider it fair to current or future taxpayers to continue prolonging the inequality between men’s and women’s state pension age beyond 2018. This was democratically debated and decided at the time. I campaigned hard for these women as I was aware of the problems faced by some of those affected. That campaign achieved a major concession, despite the grave fiscal situation at the time, which eased the timetable for around 250,000 of them. It committed the Government to prolonging the inequality between men’s and women’s state pension age by an extra six months relative to the original Pensions Act 2011 timetable—proposals that would cost the taxpayer more than £1 billion.
The noble Baroness, Lady Bakewell, rightly mentioned that people in an ageing population with rising longevity will work longer. Indeed, the average actual retirement age for women has for many years been above their state pension age, so clearly most women no longer wish to stop working at 60. My noble friend Lady Jenkin also rightly mentioned this. Encouraging and enabling those who want to work longer is a government priority and is the best solution to poverty in later life for those who can do so. Most people are just not “old” at 60 these days—or even at 65, in most cases—and the expectation of stopping work altogether at such a relatively young age is simply not sustainable.
Of course, I am concerned about the particular position of women—and indeed men—who cannot work. Some may have caring responsibilities, while others may suffer from disability or illness which make work difficult, but the Government will ensure that both women and men who are affected will be eligible for the in-work, out-of-work, ill-health or disability benefits that we have designed for them. Carer’s credits and carer’s allowances are available for both men and women who care for others. It also has to be said that a state pension is not a right—it is not like a private pension but is rather a social security benefit. The national insurance we pay pays for many other elements of the social insurance system: unemployment, ill health and disability benefits, as well as the NHS.
The noble Lord, Lord Stoneham, whom I thank for his warm words of welcome, rightly highlights the reasons why the new state pension reform is so important. The changes to the women’s state pension age helped pave the way for this radical major reform, which has introduced the new state pension. The cost savings resulting from those changes, and savings elsewhere, have allowed the new state pension to be introduced from April 2016. The women in their 50s whose state pension age was increased by the 2011 Act will all receive the new state pension when they reach their state pension age.
I reassure the noble Lord, Lord McKenzie, that, contrary to some media representation, the new state pension will be more generous for most women, who have historically done poorly under the current system—as I have long recognised and highlighted—largely as a result of their lower average earnings and periods of part-time working. Today we have published some analysis showing the impact of the new state pension on an individual’s pension outcome in the first 15 years of the new scheme. In that period, 70% to 75% of women will have a higher notional state pension income than under the old system.
My noble friend Lady Jenkin mentioned financial planning and financial education. She is absolutely right: this is vital, and the Government’s programme of reforms can help facilitate it. The new state pension reforms have paved the way to make auto-enrolment safe so that all workers will be entitled to a pension at work as long as they earn more than £10,000 a year. That gives us the opportunity to embed financial planning and financial education in the workforce via employers and providers. Of course, I am happy to consider meeting Shirley Conran about the important issue of female financial planning.
As I mentioned, the cost savings have paved the way for the new state pension. All of this is being done in the interests of gender and intergenerational equality and of a sustainable pension system for the future.
I thank noble Lords for their contributions. I agree that communication is vital and we are having a major communications campaign. Information is being rolled out and will continue to be rolled out in detailed blogs and advertisements, as well as in digital, radio and social media advertising. I have written extensively about this and will continue to do so.
I thank the noble Baroness for bringing forward this debate and am pleased that we have had the opportunity to discuss these vital issues. I reassure the noble Lord, Lord Stoneham, that we have no plans for further delays to auto-enrolment. We are merely aligning thresholds to make the increases in contributions easier so that we have fewer opt-outs. I want to say how much I have appreciated the quality of today’s debate and I thank noble Lords for taking part.