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28 October 2016

How can women’s pension shortfall be addressed?

John Cridland
The interim report of the Independent Review of State Pension Age, chaired by John Cridland, and published earlier this month, sets out a clear analysis of the issues relating to the affordability and fairness of potential future increases in state pension age. It recognises the issues of fairness within and between generations, including those between men and women.
Financial security is key to well-being in retirement and this will be as true for future generations of pensioners as it is for those who are already retired. While the universal state pension will provide a guaranteed minimum income for the majority of people in future, for most this will need to be supplemented by private income. Future generations will need to save for their later life but will also need to work for longer if they are to enjoy a decent living standard. The report identifies those groups who are more at risk of having insufficient income in later life and who are more likely to rely on the state pension; these include carers, people with disabilities, the self-employed, ethnic minorities and women.
The report draws on research that shows that men are projected to have around a 25 per cent higher income on average than women in their first year of retirement. This equates to a difference of approximately £3,000 per annum.

Men and women across all generations are set to receive very similar amounts of State Pension. The discrepancy in pension outcomes for men and women instead reflects different private pension outcomes. On average across all generations, just under 30 per cent of women’s total pension is made up of private (most often occupational) pension, compared to just over 40 per cent of men’s. These private pension outcomes reflect the fact that women currently earn on average less than men across their working lives and are more likely to take career breaks and this is assumed to continue into the future.

The report recognises that for many couples decisions around work and caring have been taken jointly and for them the important factor may be overall household pension income. However, the report asks two questions:

  1. What is the best way to take into account the lower pension outcomes for women in our recommendations?
  2. For older workers in particular, the adequacy of income in retirement may be best considered at a household level. However, when planning future changes to the pension system, how reliable is this assessment now and how reliable will it be for future generations?

You can read the full report here.

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