Caught in a trap?
The main losers in the Government's move to raise the pension age will be low-paid women, such as classroom assistants, according to Unison, the public-sector union.
These women are already set to struggle in old age; low wages mean that the average occupational pension of members of the Local Government Pension Scheme is a mere pound;3,800 a year. "A common mistake that people make is to think that public-sector pension schemes are fantastic," said a Unison spokesperson. "In fact, many of our retired members are relying on means-tested benefits just to survive in retirement."
Nearly a quarter of female pensioners currently live in poverty, according to figures from the Department of Work and Pensions, but raising the pension age is set to force even more women into means-tested benefits, Unison says. If they have to work until 65 for unreduced retirement benefits, even fewer women will qualify for a full state pension, for instance.
"The generation of women who were expecting to receive a state pension at 60 is unlikely to work on until 65, yet those who are currently aged under 52 will face a considerable reduction in their state and occupational pensions if they can't manage to continue working," said Glyn Jenkins, head of pensions at Unison.
As it is, many women are already reluctant to pay into an occupational scheme because they cannot afford to. Typically, many female ancillary workers in education are only paid an hourly rate and receive no pay during the school holidays. Many full-time classroom assistants earn as little as pound;10,500 a year. Overall, Unison reckons that between 25 and 30 per cent of people eligible to contribute to the LGPS have opted out. In some areas, this figure is higher.
Paul Skillicorn, pensions review officer for council employees in Gwent, South Wales, says that only 67 per cent of local government workers take up the scheme in his area. He says that, although the LGPS offers good benefits, such as death in service grants and children's pensions, people sometimes don't see the point in contributing if they are facing a poverty trap in old age.
"If you are a classroom assistant earning between pound;10,000 and Pounds 15,000 and you only have 10 years in the scheme, because the Government's pension top-ups are means-tested, your occupational pension could take you out of the pension credit band," he said. In other words, saving may make you no better off.
"It will be extremely difficult for the many women with low earnings and periods out of the labour market, and those advising them, to decide whether saving will significantly increase their retirement income," warned Age Concern and the Fawcett Society in their response to the Government's pensions green paper.
The pension credit is intended to be a reward for savings and although most people entitled to the benefit will be better off because they have saved, they will still lose at least 40 pence for every pound saved. The complicated interaction between pension credit, housing benefit and council tax benefit means that some will lose more than 90 pence in the pound.
Unison feels that forcing women to work on until 65 will make the current situation worse. The most unpopular change proposed for the LGPS is the abolition of the "rule of 85", which allowed people whose years of pensionable service and age amounted to 85 to take early retirement without any reduction in their pension, if their employer allowed them to go.
Someone aged 52 with 33 years' service, for instance, could retire on a full pension.
Local government employers argue that increased longevity means that they cannot afford to fund the scheme any longer without massive rises in council tax; some employers are already paying 20 per cent in contributions to employees' pensions.
But following a threatened strike by public-sector workers in March, the Government has withdrawn its original proposals and has promised to set up a new negotiating forum to discuss the LGPS. Whatever the future of the scheme, Age Concern and the Fawcett Society believe that the financial security of women in old age could best be achieved by improvements to the state pension. They would like to see significant changes such as the abolition of the 25 per cent rule, which means that anyone who has paid fewer than 10 years of full national insurance contributions receives no pension at all.
Another recommendation is to reduce the number of contribution years needed for a full state pension. Currently, a full pension requires the payment of NI contributions for 90 per cent of the working life, another rule which discriminates against the large number of women with interrupted employment records.
Age Concern and the Fawcett Society are also pushing for a more flexible system of pension credits for women who are carers. They would like to see credits available to women who combine caring with part-time work, for example, and would like home responsibilities protection, which pays state pensions contributions, to be available on a month-by-month instead of a yearly basis.
Currently, a woman who has a baby at the end of April does not receive home responsibilities protection for that year as she only has 11 qualifying months. Above all, they say, unpaid work in later life, such as caring for grandchildren or elderly relatives and community and voluntary work, should be recognised as a social and economic contribution and not be penalised.