Memorandum submitted by the Women's Budget
Group (PC 01)
1. Women are poorer than men in retirement
because of the employment constraints posed by the essential demands
of family care during their prime years. Older women have a median
income which is less than 60 per cent of older men's and gender
inequality of income in later life has been increasing rather
than diminishing. Only a minority of older women have any private
pension and very few are able to accumulate a substantial amount
of such pension income. Gender equality in the ability to accumulate
private pensions will not, on present trends, be achieved in the
foreseeable future. It is therefore vital to women's financial
security in later life that the basic state pension be set at
a level sufficient to live on now, and also indexed to national
2. Insofar as the Pension Credit proposal
represents an alternative to raising the basic pension, it will
be detrimental to women, consigning the majority to dependence
on means testing. It has been suggested that the Pension Credit
will draw half the older population into means testing and it
is likely that lone older women will be over-represented in the
3. The proposed Pension Credit raises a
number of other concerns:
(a) Low take up. In spite of the government's
campaign, improvement in the take up of MIG has been limited,
leaving an estimated 400,000 pensioners on extremely low incomes.
The persistence of low take up of the MIG augurs ill for take
up of the Pension Credits.
(b) Poverty trap disincentives. Although
Pension Credits would reduce the severity of the current poverty
trap arising from the low level of the basic pension, a trap will
remain at the upper limit of Credit eligibility, with adverse
consequences in terms of unfairness to those who saved and disincentives
to save for those of working age. Indeed the Pension Provision
Group has pointed out that Pension Credits could extend the disincentive
to even more (although different) individuals.
(c) Women with a partial basic pension. A
particular problem with the Pension Credit applies to women, since
those with less than a full basic pension (mainly women) will
not benefit from a Pension Credit for that part of their income
between their basic pension amount and the full amount.
(d) Couples where each has a basic pension.
Similarly, couples where both partners have a basic pension in
their own right will lose out, since the Pension Credit for couples
is based on the assumption of a wife having a category B pension
at 60 per cent of the full rate. This represents a return to the
pre-1978 situation, where wives were effectively discouraged from
paying the full NI contribution towards their own basic pension.
(e) Increasing complexity. The Pension Credit
is likely to give rise to complex interactions with Housing Benefit
and Council Tax Benefit, creating further difficulties for potential
claimants in understanding an already over-complex system.
(f) Perpetuating gender inequality in households.
Because Pension Credits will be a means-tested benefit, the unit
of assessment is of great importance. Family-based assessment
introduces well-known problems where there are women in couples
whose savings may not be rewarded. As Pension Credits draw a growing
proportion of households into means-testing, resources will increasingly
be routed through one person in couples, and that person is more
likely to be the man. This will have regrettable consequences
for fairness and equity within households.
4. I would like to emphasise that means
testing (with or without the Pensions Credit taper), is no substitute
for an adequate basic pension as it does nothing to encourage
saving. Women are increasingly entitled to the full basic pension,
due to HRP, so that most women, like most men, will potentially
have a secure platform on which to build additional pensions and
savings. The positive incentive effects of this development are
lost if the basic pension is allowed to decline relative to earnings.
Dr Jay Ginn
11 December 2001