Still time for Government to adjust its plans for state pension age changes

by Dr. Ros Altmann

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Pensions Bill Second Reading – we don’t need a U-turn, Government just needs to take a better and fairer route along the same path

Government could face costs of legal challenge for compensation as the changes seem unfair in public law terms

Backbench MPs from all parties have started to realise that these proposals are not quite right and need to be adjusted. There are better ways to achieve the Government’s aims.

For the past two weeks, backbenchers have challenged David Cameron on this issue at Prime Ministers Questions. The PMs answers do not stand up to scrutiny. He says we need to increase state pension age – that is true, but we have to give people fair notice. He says we have to put our pension system on a sustainable footing as life expectancy rises. Again, this is true, but can be achieved in a better way without the unfairness. He also says we have to deal with the deficit – once more that is right but the current proposals do not save any money in this Parliament anyway, so the rush is nothing to do with the deficit.

An alternative approach would be a win-win for everyone. By keeping the current equalisation timetable to 2020 and then moving more quickly to 66 by 2021, this would give everyone around ten years’ notice of the proposed increase in their state pension age. We could then move to 66½ more quickly than planned, by say 2024 or 2025. This would recognise longer life expectancy, give people fair notice, honour the Coalition Agreement and save more money on pensions than the current plans would achieve.

I have prepared the briefing below for MPs, to help them understand the issues better and hope that we can move along the same path more fairly and appropriately. Ministers must listen to reason on this issue. The current plans are unfair and may, indeed, be illegal in public law terms, since they clearly do not give women adequate notice of the large changes in pension age that they face. A legal challenge to the fairness of these proposals is likely to be difficult for Government to defend and could end up costing the taxpayer significant sums in court fees and compensation for those affected. Let’s adopt a more practical approach now, before it’s too late.

Saga Explains Why Government Plans To Increase State Pension Age Are Unfair – And Proposes Alternatives

Saga supports the Government’s intention to accelerate increases in state pension age, in recognition of the great news that people are living ever longer. Life expectancy is rising faster than anticipated by the 2005 Pensions Bill, and the costs of supporting an increasingly ageing population will clearly require adjustment in the age at which state pensions start to be paid in future. However, Saga believes people need fair notice of future changes, giving them reasonable time to prepare. The current proposals do not do this. Six years’ notice of up to a two year delay in pension age clearly does not provide time to make alternative arrangements.

However, Saga believes there are much better and fairer ways to deal with this issue and hopes the Government will take the opportunity to adjust its plans. This is not a ‘u’-turn, this is a better way of moving along the same road. Adjusting the plans to save more money, treat men and women the same and also keep the Coalition Agreement, would be a win-win alternative path. It would not be a new path, but an adjustment of the current plans.

Alternative proposal:
Our favoured proposal would be for the Government to start increasing the state pension age more rapidly from 2020 onwards, perhaps to reach 66½ by 2024 or 2025. (Holland has just decided its state pension age will move to 67 by 2025, so such moves are entirely possible). By leaving the current timetable in place, the unfairness and discrimination against the hundreds of thousands of women who would be hit by the current plans will disappear – from 2020 men and women will be treated the same.

Advantages of this alternative approach:

• Save more money by 2025 than current proposals
• Give fairer notice of around 10 years or more to allow people a chance to plan
• Increase state pension age more quickly to control costs and adjust to longevity changes
• Men and women treated the same
• Honour the Coalition Agreement promises

Saga has been inundated with letters and emails from women who are distraught and angry about the unfairness of the Coalition’s proposed changes to their state pension age. They have asked us to help explain to the Government why these proposals are unfair. These women cannot understand why they have been singled out to bear the brunt of long-term cost savings on state pensions. Saga does not understand this either.

These particular women, already in their late fifties, have insufficient time to make alternative plans to replace the many thousands of pounds in state pension they will lose.
We hope this briefing will be helpful for MPs when considering how to respond to constituents and participate in the forthcoming Pensions Bill debate.

Number of men facing increased state pension age of more than 1 year	NONE
Number of women facing increased state pension age of over one year	500,000
Number of women facing increased state pension age of over 1½ years	300,000
No. of years of pension age increase for women between 2010-2020	6
No. of years of pension age increase for men between 2010-2020	1
Number of years’ notice of up to 2-year rise in pension age for women	6
Number of years’ notice of up to 1-year rise in pension age for men	7
Proportion of these women who are single (no husband to rely on)	35-40%
Proportion of these women who are already out of the labour force	37%
Proportion of these women with no private pension	40%
For those with private pension, amount of pension wealth relative to men	One eighth
For those with final salary pension, amount relative to men	half

The Prime Minister has recently tried to justify the current plans, in response to backbench pleas to rethink. I have extracted the statements given by David Cameron and explain why the arguments are not a valid response and that adopting our alternative proposals would be a better, fairer and more sustainable way forward, that could command cross-party support and also save more public money on pension costs thereby allowing a better pension to be paid, which is the aim of the policy anyway.

DAVID CAMERON’S replies to PMQs on 15 June and 8 June 2011 do not justify the current plans. Here’s what he said and why the arguments are not correct.

PMQs 15 JUNE:

‘All parties supported the equalisation of the pension age between men and women. That needed to happen.’
Yes, indeed, but equalisation of pension age between men and women is already underway and both men and women’s pension age will be 65 in 2020. The problem is not equalization but the speeding up of existing plans which is unfair and does not give women time to adjust. Women who have already adjusted to a large pension age rise must be given fair notice and the current proposals do not do that.

‘We also need to raise pension ages to make sure that our pension system is affordable
This is true, but that can be achieved by giving people fairer notice of changes in the years after 2020, rather than hurrying through inadequate measures unfairly.

‘If anyone wants to be serious about pension reform and dealing with the deficit, they should back these changes’
These changes are not about dealing with the deficit, because no money is being saved during this Parliament anyway. It is true that we must save money on state pensions, but we can do that in a better and fairer way by increasing the state pension age faster beyond age 66, to perhaps 66½ by around 2024 or 2025 and still save more money. Holland has just announced it will be increasing its state pension age to 67 in 2025.

‘More than 80% of those affected will see their pension age come in only a year later, so a relatively small number are affected’
Is half a million people a ‘relatively small number? That is the number of women whose pension age is rising by more than one year. Is that really a ‘small’ number.

‘The key thing is making sure our pension system is sustainable so that we can pay out higher pensions’.
To make our pension system sustainable requires rising pension ages but the increase can wait until after 2020 and go faster from there, which will give much fairer notice of pension increases and does not unfairly penalize women in particular – both men and women will then be treated the same.

PMQ’s 8th June 2011

David Cameron: ‘It is right to lift the pension age for men and women to a higher level more rapidly than the last Government did’
Of course pension ages must rise more quickly, but the increase must be done fairly and with adequate notice so that people can plan their affairs. It is clear that giving someone in their late fifties just seven years’ notice of a 2 year pension delay will mean they are unable to plan. Pensions are about long-term planning, and that requires a time period of more than 5 to 7 years.

‘four fifths of the women affected will have their state pension age increase by a year or less’
This argument does not justify the change! There are half a million women whose pension age will rise by over a year and 300,000 by more than 1½ years. No man’s pension age will rise by over a year and men have far more private pension to help tide them over.

‘the reason that there is this difficulty is that the equalisation of the pension age and the raising of the pension age are coming together, but that is enabling us to link the pension with earnings, thus meaning that people will be £15,000 better off than they were under Labour’s plans’
The cost of linking to earnings must be borne anyway, but can be recouped in a fairer and better way by delaying the rise in pension age for both men and women until the state pension age has equalized at age 65 in 2020. Then pension ages for both genders can increase together in future, even faster. If this is true, then it seems very unfair that just one group of women should bear the brunt of the changes in state pension costs.

Some Q&A’s for MPs

Question: How many women will be affected? And how many men?
Answer: 2.6 million women will face a rise in their state pension age of up to 2 years, starting from 2016. 500,000 of them will face a rise of over one year and 300,000 will face an increase of over eighteen months. 2.3 million men will face a maximum increase of up to one year in their pension age, starting only from 2018.

Question: How do these proposals break the Coalition Agreement?
Answer: The Coalition Agreement stated: “The Parties agree to�hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women.”

This seems absolutely clear. Women’s pension age would not start rising to 66 before 2020. Yet just a few weeks after this Agreement the Government unexpectedly announced that actually women’s state pension age would start rising from 2016 and by April 2020, the current plan is that both men and women’s state pension ages will be 66.

Question: Don’t we need to save money to address the hole in the nation’s finances?
Answer: These proposed changes will not save any money in this Parliament and are nothing to do with eliminating the budget deficit. There will be no savings before 2016.

Question: Aren’t these changes needed to put our pension system on a sustainable and affordable long-term trajectory?
Answer: No. These changes are not necessary to achieve that. In fact, moving to age 66 will not put pensions on a sustainable long-term path anyway, because life expectancy has risen so much that we actually need to move to 67 and beyond as quickly as possible. Moving to 66 will not be enough at all. Therefore, the aim is right and the direction of travel is right, but it needs to start a bit later, in order to allow people fair notice to prepare their life plans and then keep going faster from 66. So these current proposals are causing huge distress and upset and still won’t sort out the underlying problem.

Why are the proposals unfair?

1. Insufficient notice: These changes have been sprung on women in their late fifties, without giving them time to realistically prepare for the loss of the state pension payments they were legitimately expecting. The Turner Commission suggested giving at least 15 years’ notice of changes, whereas these proposals give only 7 years’ notice of a two year pension age increase. Saga believes that people should really have at least ten years’ notice of a one year pension age change.
2. Different outcomes for women of similar ages: A woman born just before April 1953 will receive her state pension at age 62, whereas one born on 6 April 1953 will only receive hers at age 65. Such differentials seem manifestly unfair.
3. One group being asked to bear unfair share of burden of long-term savings: By virtue only of their date of birth, a group of women is being singled out to bear a disproportionate share of the burden of necessary long-term savings in state pension costs. The need for sustainability over the long-term can be achieved in a fairer way by spreading the costs more evenly over a slightly longer time period.
4. Targeting the same women twice, despite promising not to: Women reaching state pension age from 2016 had already been increased by three, four or five years, under the 1995 Pensions Act, which legislated for women’s state pension age to start rising in 2010 from age 60, to reach age 65 by 2020. Women were given over 15 years’ notice to adjust their pension and retirement plans – and they did just that – but, with these new measures, the Government has hit many of them a second time, and with much less notice. Even last year, they were promised, by this Government, that there would be no further changes for them. Then, suddenly, they will have their state pension denied to them for up to two extra years. Many have told us they feel like the Government has gone into their bank account and taken away thousands of pounds.
5. Many of these women are ill, with shortened life expectancy: Many of those who have written to me are seriously ill (with cancer, arthritis, strokes etc.) and are distraught at the delay, after making careful financial plans to manage until they get the state pension. They feel betrayed by the Government’s changes.
6. Saga petition and Surveys show over 15,000 believe these changes are unfair: Saga started a petition on our website which has already attracted thousands of signatures and some of those affected are planning to travel to London to lobby their MPs.

How do these proposals discriminate against women?

1. Women’s pension age rising by more than men’s: Women’s pension age will rise by up to 2 years, but no man has more than a one year rise. In fact, between 2010 and 2020, women’s pension age rises by six years, while men’s rises by just one year.
2. Women being given less notice than men: Women have six years’ notice of up to two years’ change, while men are being given seven years’ notice of a one year increase.
3. These women are much more reliant on the state pension than men. DWP figures show that 40% of women of this age have no private pension wealth at all. Not being able to receive their state pension is, therefore, much more serious than for men, since the state pension is their main source of expected retirement income.
4. Many more women than men are already retired, or caring for others so cannot ‘keep working’: DWP figures show that more than one third (37%) of women aged 56-60 are not working, so they will not be able to ‘work longer’ to make up their losses because they are not even in work. Many are already caring for older relatives – parents, partners or grandchildren – having taken early retirement to do so, which, of course, saves society substantial sums
5. These women earn less than men: Women in their late fifties have generally spent their lives earning less than their male counterparts and often work part-time now too, so they have less chance than men to make up for lost pension income.
6. These women have less private pension than men: As they earned less and often had interrupted careers, these women had far less chance to build up private pension savings than men of the same age. Most of them worked part-time in their early careers and were banned from company pension schemes until the 1990s. Even those with a private pension, have much less than men. DWP figures show their median pension assets are only one eighth the value of men’s, making them far more vulnerable to loss of state pension than men.

Alternative proposals for MPs to consider

1. Accelerate increase beyond age 66 faster than planned New proposal: Keep the timetable of state pension age increases as it is now until 2020, thus honouring the Coalition Agreement, but then accelerate the increase in state pension age to 66 by April 2021 and to 67 by April 2025. This still gives ten years’ notice of a one year change in pension age and 14 years’ notice of a two year change. State pension age would reach 66¼ by April 2022, 66½ by April 2023, 66¾ by April 2024 and 67 by April 2025 for both men and women. The savings in state pension payments from this accelerated timetable would be fairer, help state pension age reflect higher life expectancy, save money relative to current proposals and would better move us towards long-term sustainability than the current plans.
2. Keep existing timetable till 2020, then accelerate rise to 66 by April 2021: Delaying the State Pension age increase until 2020 and then accelerating the rise to 66 by April 2021 would, according to DWP figures, result in an extra cost of around £7billion (Lords Hansard, 1st March 2011, col. GC123).
3. Limit pension age increases to no more than one year for everyone: Ensuring that no woman faces an extra pension rise of more than one year, thus alleviating the extreme unfairness of women facing up to a 2-year delay would, according to DWP figures, cost an extra £4billion (HL 7234, col. WA415, 9th March 2011).
4. Keep Pension Credit eligibility to the current women’s pension age timetable: To protect the most vulnerable women (and men) from the impact of the pension age increases, Government could ensure Pension Credit remains available to people in line with the current women’s pension age timetable. According to DWP figures, this would cost an extra £800million (HL 7233, col. WA 414, 9th March 2011).

Summary of possible alternatives and their costs:

Accelerate increases to 66½ by 2024 or 2025	Save £5bn
Cost of keeping pension credit age on current timetable to protect poorest	Cost£800m
Cost of ensuring no woman faces more than a one year increase in SPA	Cost £4bn
Cost of keeping existing timetable to 2020, then reaching 66 by Apr 2021	Cost £7bn
Cost of keeping existing timetable to 2020, then reaching 66 by 2022	Cost £10bn

Why Ministers’ reasons for going ahead with the changes are not acceptable:

1. Life expectancy is increasing so state pension age has to rise: Rising longevity does not require this sudden increase in pension age being imposed at short notice on one group of women who have already seen a sharp rise, which they have accepted and planned for. It does mean that we need to increase state pension age beyond age 66, much more quickly than planned and this is a better solution to dealing with rising life expectancy, which can give fairer notice.
2. Pensions must be put on a sustainable long-term footing as costs are rising The argument about long-term sustainability is well made, but still does not justify the sudden increase being imposed on one group of women at such short notice, especially when the Government knows that these particular women are more vulnerable than men and have little or no private pension wealth. Also, many are already out of the labour market and have made careful plans for their future, which are now in disarray. The pension system can be put on a long-term sustainable path by increasing state pension age more quickly in the future years, rather than having to rush to do it now so unfairly.
3. Government cannot increase men’s pension age before women’s due to EU law This is not a reason to punish women, it is a reason to delay the increases for everyone perhaps until 2020. It is also certainly not any justification for increasing women’s pension age by up to two years, even more than that of men.
4. These women can go onto unemployment benefit if they are out of work For many of these women, this is not an option and, in any case, this will not replace two years of lost pension. Out of work benefits will last only six months and are far less than state pension. Having a small private pension will exclude many of these women from benefits and many would not want to claim anyway. They feel this is an insult.

Conclusions:

Saga believes the Government needs to rethink its plans for accelerating state pension age increases. The current proposals involve both gender and age discrimination. Worryingly, many of the women affected do not even know their pension age could change again, because there has not been enough publicity surrounding the changes. The particular women affected by the proposals, aged around 56 or 57, and men of similar age who would have needed Pension Credit, are shouldering a clearly disproportionate share of the cost savings on pensions that are needed to help improve the nation’s long-term financial health. The alternative proposals could help address the unfairness of the current plans.