Pension reform should focus on women

Dr Liam Foster

The global economic and financial crisis since the summer of 2007 is without precedent in post-war history. The resultant higher unemployment, lower growth, increasing national debt and financial market volatility are making it harder to deliver on pension promises and have demonstrated serious weaknesses in the design of many pension schemes and their long-term sustainability. This has led to changes in pension scheme design which on balance risk affecting women in a disproportionate manner.

This is particularly important given that in 2009/10 single men received on average £85 a week from occupational pensions while women only received £58 (68%) a week (Department for Work and Pensions 2011). The gendered nature of retirement income relates to many women’s limited opportunities to contribute to pensions throughout their life course with typical male working patterns still too often the reference point for the calculation of pensions and gender differences in work and care duties overlooked. These inequalities can be exacerbated in times of economic crisis through austerity measures, the impacts of which  ‘are set to hit hard those whose standard of living is already well below that seen by a majority to be minimal’ (see The Impoverishment of the UK, PSE 2013: 17).

First-tier pensions

The economic crisis has increased concerns about levels of expenditure on first-tier pension schemes leading to the introduction of measures to stabilise first-tier pension spending, especially through reduced eligibility. For instance, the UK announced a phased increase in the pension age in 2008 to 68. This may be problematic for women (and men) who have already made work, saving and retirement decisions based on a particular state pension age and who are not able to adjust to the changes by working or saving longer. In 2011, the UK government also announced its intention to combine the Basic State Pension (BSP) and State Second Pension (S2P) into a flat rate single-tier pension of £140 per week (at 2010 prices) in the future. Women with low lifetime earnings are likely to be the major beneficiaries as it will ensure most working age women receive a pension above the level of means-tested entitlement, regardless of lifetime earnings. However, women who would otherwise have accrued state pension entitlements above £140 per week through S2P will be worse off.

Second and third-tier pensions

The role of private pension funds has been at the core of intense debate since the crisis. The UK, consistent with the pre-crisis reform path, has attempted to reinforce the public/private mix. This exacerbates the challenges women face in accumulating a pension comparable with their male counterparts. Private pensions have been substantially affected by the crisis through the decline in rates of return on investment and the persistently low interest rates.

One common outcome has been that moves towards Defined Contribution (DC) schemes from Defined Benefit (DB) schemes have sped up. This increases the risk associated with pensions moving it from the provider to the individual. For instance in DB pensions, financial and longevity risks are borne by the scheme sponsor as pensions are usually based on a formula linked to members’ wages and length of employment, while benefits from DC schemes are a function of the amount contributed by the member and sponsor and any return on that investment, with no guarantee concerning the level of their future pensions. The move towards DC schemes represents a change from a more buffered system to an individualized exposure to financial market risks.

Recent falling equity prices and declining annuity rates mean that many current pension pots are not delivering adequate pensions and that a larger DC fund is now required to provide a decent retirement income. Career breaks, most likely to be experienced by women, generally have a stronger impact on pension benefits in DC than in DB schemes as the calculation of benefits in DB schemes are not necessarily as closely related to the contribution record. Furthermore, the move towards DC schemes is likely to have further consequences for women on the death of a spouse given that annuity purchases tend to be for single annuities. This is problematic for those women unable to gain a decent pension in their own right. This will have a significant effect on women who have taken a career break to look after children on the basis that they will have some share in their partner’s pension.


While auto-enrolment was first proposed prior to the crisis in the UK, from the 1st October 2012 (subject to the employer's own introduction date) all eligible workers were auto-enrolled into a qualifying pension scheme without an active decision on their part. However, auto-enrolment excludes people with an income below a certain level and, in accordance with other forms of private pension provision, makes no allowance for gaps in employment which characterize the work history of many women, individualises risk while also incorporating DC-type features of investment-risk.

Furthermore, extra saving may not be advisable due to auto-enrolment’s potential interaction with means-testing and there is no guarantee that the fund at retirement will exceed the value of contributions paid. Therefore, it remains to be seen whether this will be an adequate response to the challenges presented by the crisis to pension saving and longer term challenges.


The current economic crisis (and an ageing population) has sped up changes to pensions. However, ensuring that pension spending remains sustainable, while reducing pensioner poverty, represents an enormous challenge. Policy needs to recognise women’s diverse life course experiences and explore their capacity to plan in relation to pensions, while encouraging women to, wherever possible, build up pensions in their own right (Foster, 2012). We need to ask to what extent strategies since the crisis are likely to impact on women’s pensions, and to consider whether individuals are retired, close to retirement or expect to continue contributing to pensions for many years to come. Therefore, the economic crisis and the responses to it have revealed the need to place the position of women at the heart of pension debates.

Dr Liam Foster is a lecturer in Social Work at the University of Sheffield and author of “I might not live that long”.

Foster, L. (2012) ‘‘I might not live that long!’ A study of young women’s pension planning in the United Kingdom’, Social Policy & Administration, 46(7): 705-26.

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