There isn’t just a gender pay gap – there’s also a significant gap when people retire, which is unfortunate as some may rely on their pension to get by.
A study by Profile Pensions this year found that on average women in the UK go into retirement with 39% less in their pension pots than men.
And while this covers private pensions, it appears there can also be issues when it comes to the State Pension.
Indeed, new research from pension consultancy firm Lane Clark & Peacock (LCP), and its partner Steve Webb, the former pensions minister, suggests that thousands of older women across the country are getting a raw deal when it comes to the old State Pension.
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Married women missing their uplift
One issue affects married women who are financially dependent on their husbands.
The UK’s pension system was actually designed to make provisions here. Women with only a few years of National Insurance contributions (meaning a smaller State Pension) could instead qualify for a basic State Pension at 60% of the full rate, based on their husband’s National Insurance record.
Up until March 2008, women were required to actively claim this uplift once their husband reached the age of 65. Claims could be backdated by 12 months too.
After 2008, however, the Department for Work and Pensions introduced a system where the uplift was added automatically to the pensions of eligible women, removing the need to make a claim.
But most importantly, it didn’t review old cases, meaning plenty of women who were entitled to this extra cash but hadn’t made a claim effectively fell through the cracks.
It would be a mistake to view this as simply an issue for those who stayed at home raising a family.
Until the late 1970s, married women had the option of paying a reduced rate of National Insurance contributions, on the proviso that it didn’t count towards their pension entitlement.
When this option was closed to new workers, a massive four million women were paying it and were able to continue doing so.
Now there are some working women reaching retirement who are entitled to very little State Pension in their own right as a result, and so are reliant on claiming this uplift to which they are entitled, should they be married.
Other women missing out
There are other examples identified by LCP of groups of women who are potentially being short-changed on the State Pension they are receiving.
The firm’s study found that there are widows, for example, who appear to be on very low State Pensions, beyond the level that could be expected when claiming on the record of a late husband.
Divorced women, too, are entitled to effectively substitute the National Insurance record of their ex-husband in place of their own for the period up to the end of the marriage.
And then there are women aged 80 or over who should be entitled to a pension worth £80.45 a week on a non-contributory basis, so long as they satisfy a simple residency test.
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Thousands of women left out of pocket
LCP suggests that if the system was working properly, then there would be relatively few women receiving a State Pension of less than 60% of the basic level.
But analysis from the firm suggests that there are now tens of thousands of women in this position, who may now be facing a more difficult and financially stressful retirement.
These aren’t small sums we are talking about either.
Based on previous cases of women contacting the Department of Work and Pensions (DWP) to make a claim, LCP suggests that in total women could be missing out on around £100 million in pension payments.
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Putting things right
So, what’s the solution here, beyond simply urging more older women to check what they may be entitled to?
The first step seems pretty clear to me.
If the DWP is in a position to carry out automatic checks on women who have qualified since 2008, then it should be able to do the same for those women it has records for from before this date.
And in those cases where it doesn’t have sufficient information, it needs to be more proactive in contacting people to fill in the gaps in its knowledge.
It is crazy ‒ and frankly wrong ‒ to expect these elderly women to take charge of this process.
Webb has called for a review of the rule stating that women can only backdate a claim by 12 months, which strikes me as very sensible.
Given this entitlement is not exactly well known, it’s nonsense to essentially punish those women who don’t realise what they are actually entitled to until years down the line.
They are entitled to larger pension payments and should get them.
This study is another important reminder of just how extraordinarily complicated the old State Pension system was.
Let’s just hope that decades from now we aren’t seeing similar studies into the holes and flaws of the new State Pension, but only time will tell.