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The state pension growing (or not) pains

The state pension needs to be overhauled and made fair for all. There needs to be a real drive to make all pensions clear and simple so everyone has the means for a comfortable retirement.

The state pension has been in the news a lot lately with much moaning about the delayed payment of pensions to women of a certain age and different levels of payment to men and women of a certain age.

The Women Against State Pension Inequality (WASPI) argues that women born on or after 6 April 1951 to 5 April 1953 were informed too late in the day that their state retirement age was increasing, leaving them little time to re-plan for their retirement.

Then there was the recent annual rise in the state pension of 8.5% (matching wage growth which was higher than the two other measures of either inflation or 2.5% – the so-called triple lock). While this was the largest many have seen, it is not being uniformly applied over all those in receipt of the state pension. Individuals who reached retirement age before 2016 are in receipt of the old style state pension comprised of two elements: the basic state pension (based on national insurance contributions) and the additional state pension (based on earnings and benefit claims). The shortfall arises because the triple lock rise only applies to the basic state pension. The additional element only rises by inflation ie 6.7% and not the 8.5%.

Of course, no-one should be relying on the state pension – on its own it will support only a fairly impoverished retirement. The state pension should be considered just one element of one’s income in retirement.

While the state pension has always been relatively egalitarian, amounts of private and company pensions often vary for men and women. Statistically men tend to have bigger pension pots than women. According to research from Legal & General, the pensions gender gap starts initially at 16% but ‘can double by the time women reach their 40s. By the time they’re in their fifties it could be 51% and finally when they reach retirement their pension savings could be 55% smaller on average’ than their male counterpart.

Many people may not have had access to a company pension or their wages have been too low to build up a meaningful private pension. Some may have not had long enough in the work force to save adequately. Common reasons for the disparity in pension pots between men and women include the fact that women are or were more often those at home looking after children or other dependents.

The latter situation could be the same today. But with the introduction of auto-enrolment meaning individuals have to actively opt out of a company pension, the argument of no access and no employer contributions wanes – although not for those under age 22 or earning less than £10,000 per year.

In the financial year 2022-23, 0.8% of workers opted out of their workplace pension scheme, according to The cost of living crisis hasn’t helped. Without nannying too much employers need to highlight to their staff importance of staying invested in a company pension – it is not just the employee contribution, but the employer contribution and the ‘free money’ of the tax relief applied on contributions.

The state pension system is devilishly complicated and only the government can change that! Now is the time for a campaign by the government to explain how it works, how the employer pension system works, how private pensions work – frankly how pensions work so that, come every individual’s retirement they have a pension that does work.

Stephanie Spicer is head of content, Quill PR

Photo by Francesco Gallarotti on Unsplash