So, what’s all this fuss about women and pension age? Why can’t the Government simply use money from National Insurance to smooth things over?
Women Against State Pension Age Inequality (WASPI) describes itself as “… a campaign group that fights the injustice done to all women born in the 1950s affected by the changes to the State Pension Law (1995/2011 Acts)”.
WASPI has organised public protests (demos and marches), generated much publicity, had questions raised in the UK Parliament (notably by Mhairi Black) and presented evidence to the Select Committee on Work and Pensions. The chairman of the last-named, Frank Field, felt moved to describe the women affected as “grotesquely disadvantaged“.
Pension Age Equalisation
Let’s go through the background to all this. The starting point is the decision, made more than 20 years ago, that the State Pension Age (SPA) should be the same for the two sexes. In practice, that was to mean raising the age for women to bring it into line with that for men, which was age 65 at the time. (Sadly, no-one was suggesting meeting the objective by lowering the age for men …)
The Pensions Act 1995 gave effect to this intention, by moving the SPA for women from 60 to 65; but, it did so over a protracted timetable, spanning 2010 to 2020. This would have resulted in a notice period of 15 years before any change were made, plus a phased adjustment of the SPA over a further 10 years.
There would be no impact on women born before 06 April 1950, who would still be eligible for the State Pension (SP) at their 60th birthday. Those born on or after 06 April 1955 would have to wait till their 65th birthday. For those born between those dates, the SPA applying would be an intermediate value, progressively increasing as a bridging mechanism.
As explained in Part 1 of this series of articles, the SP being provided in the UK is under financial pressure, largely because of adverse demographic trends. Accordingly, the 2008 Pensions Act increased the SPA to 66. For women, the idea was for this to be delayed until after the 1995 transition timetable had been completed, thereby affecting younger people only.
The push towards harmonisation of the SPA (aka “Equalisation”) was largely a result of a policy directive of the EU. Although the 1995 decision met the core objective, the timetable set out was deemed to be too lengthy and in 2011 the UK Government agreed to bring things forward by two years, in order that the change to a common SPA of 66 could be completed by 2020.
On the surface, this acceleration doesn’t appear to be much. The problem is that it gave rise to steep increases for women born in 1953 and 1954, at very short notice. After some campaigning, the impact was softened slightly by limiting any additional increase via the second SPA adjustment to a maximum of 18 months on top of the 1995 impact. This still meant that the overall change for this group will be a retirement delay of 3 to 5 years.
Those born between 1954 and 1959 are also unhappy: most of them have to work until they are 66. Older women, born between 1951 and 1953, compare themselves to others only slightly older who will have retired at age 60, as they had been hoping to do themselves.
The 1995 Act was passed by the Tory Government. Despite opposition at the time, Labour did nothing to change things after coming to power in 1997. The Tories (with Liberal Democrat assistance) then added the 2011 twist to the tale.
In all the enormous volume of commentary generated, at the time and since, there doesn’t seem to be much reasoned opposition to the original 1995 measures. Whilst recognising the impact on the individuals caught by the transition, there has been general acceptance of the need to correct the anomalous difference in the SPAs for the sexes and also to tackle the harsh reality of the projected finances.
The 2011 change is a different matter, however. There has been widespread condemnation of the alteration to a transition that had been trailed for 15 years and had already commenced. It flew in the face of the recommendation by the Pensions Commission that a minimum notice of 15 years should be given in respect of any such change. (The Government’s own current suggestion is that future rises should be subject to a 10-year notice requirement.)
That might lead you to conclude that the solution to the problem is a relief arrangement of some kind, possibly means-tested, that would mitigate the adverse impact of the 2011 acceleration. The ultimate relief would be to scrap the 2011 change altogether, leaving the 1995 timetable in place with the 2008 rise to 66 following on after that. You’d be wrong, however, in thinking that would sort things.
The WASPI website says that it “does not agree with the unfair way the changes were implemented – with little or no personal notice (1995/2011 Pension Acts), faster than promised (2011 Pension Act), and no time to make alternative plans”. Note that its complaint is not limited to the 2011 Act, but also mentions an issue with the 1995 Act, namely concerning adequacy of notice.
There may not have been much criticism at large of the 1995 Act itself, but there certainly has been of the standard of the communication of its impact. There was nothing at the time that was targeted directly at those affected. That’s what WASPI means by referring specifically to “personal notice”, making a distinction between letters to individuals and a general notice by virtue of the publication of the legislation.
In 2004, while still debating what the next step in the overall pensions journey should be, the UK Government sent out forecast letters that seemed to fudge the issue: women were told what the projected amount of their pension might be, but not the age at which they could start claiming it. Few ordinary people were aware of the change to SPA that was starting a few years later, in 2010, and these letters didn’t help to improve that position.
It wasn’t till 2009 that the DWP started to notify women born in the 1950s of their new SPA, when many were already close to age 60 and expecting to be retiring soon after. Most did not receive a letter until 2012 or 2013, following the 2011 decision. Many have claimed that letters failed to arrive at all because of the poor quality of the information held by the combination of the DWP and HMRC.
There’s one more argument being advanced, which is based on the notion of retirement at 60 being a promise made throughout almost all of the period during which the women were paying National Insurance Contributions, i.e. that there was in effect a contract in place, the terms of which must be honoured now. One of the weaknesses with this viewpoint is that you can make the same argument for anyone who was already working by 1995, i.e. women born between 1960 and 1979 were also told that they would be retiring at age 60. Including these people would expand the number of those affected by an enormous factor.
It is a matter of legal fact that there was no such binding contract between the parties, as the State Pension is a benefit, not a right, which the Government can alter if it chooses, just as it has amended other types of benefit. Nonetheless, there has to be some force to the view that we should as a society be trying to meet any expectation of this kind if it were reasonably held, as this one undoubtedly was.
WASPI is keen to emphasise that it is not calling for repeal of the 1995 Act: “We do not ask for the pension age to revert back to age 60”. The equalisation of pension ages should still proceed, therefore, and those born in the 1960s onwards would still be subject to the uplift in SPA. Instead, what is being sought is that there should be an exemption for the WASPI women and for them alone.
Because of the communication failings, WASPI is seeking compensation: all women born on or after 06 April 1951 (and before 1960) should be put into the same financial position as if they had been born on or before 05 April 1950. There are different suggestions as to the mechanism for filling the gap, but the essential point is that the net result would be as if the 1995 Act did not apply to the women concerned.
National Insurance Sting
I commented on the workings of the National Insurance Fund (NIF) in the first article in this series. Apart from Equalisation as a principle, the driver behind the changes made in 1995, 2007 and 2011 was restoring the NIF to a solvent state over the medium term. Any departure from the measures contained in that group of legislation will compromise that ambition, i.e. there will be a consequent cost which will have to be paid for from elsewhere. No matter the funding mechanism used for the purpose, the burden will fall on the current workforce, exacerbating the affordability challenge we face.
We seem caught between a rock and a hard place here. On the one hand, as I’ve been trying to cover in this series of articles, there’s a problem with the finances behind the UK State Pension provision which simply isn’t going to go away; hard choices need to be made. For that matter, equalisation of pension ages is long overdue in its own right.
On the other hand, there’s no doubt that the WASPI women have drawn the short straw on this one. Although the 1995 legislation provided a 15-year notice of the changes, it was asking a lot for ordinary people to have figured out by themselves unprompted what the impact on them might be. The 2011 acceleration was done with no real notice at all, adding insult to injury.
Which brings us back to what might be possible in terms of softening the blow.
In June 2016, a report was published that assessed the cost of returning to the 1995 terms and timetable as being a total of about £8 billion by 2021. The press commentary on the report went on to argue that, given that the NIF was running a surplus which would comfortably be above £20 billion for many years to come, this should be used to fund this measure.
Now, there’s a serious problem with this idea. The figures of £20+ billion are estimates of working balances the NIF is required to hold of two months’ expected expenditure. The current balance at any time is not therefore a “surplus” in the sense of being surplus to requirements – it’s in fact a working float, required to provide liquidity to meet expected outlays as well as reasonable cover for “unexpected excess of payments over receipts“. If at any time I happen to have a positive balance in my current account, that doesn’t mean that it’s money that’s going spare.
Rather than being in surplus, the NIF has in fact been running at a loss in recent years, requiring additional grants from general tax revenue in order to break even. Any additional load will necessitate an increase to this supplementary diversion of taxation money.
The report cited here considered a number of other options for redress. The impact of the claim being made by WASPI, which doesn’t stop at a return to the 1995 position but wants to exempt 1950s women from that piece of legislation as well, was costed at a total of £60 billion by 2021. That’s a huge figure and there’s no realistic prospect of that option being pursued.
What must be worth exploring is the feasibility of a targeted degree of relief. That has to include means-testing, to limit the scope to those for whom the change in SPA results in real hardship, rather than simply disappointment. There are many claims of injustice resulting from the actions of the current Government in cutting benefit payments and allowances; we have to be able to prioritise by targeting our assistance efforts.
WASPI has set its face against any means-testing component, however. Still stuck between a rock and a hard place, therefore.
5. On its website WASPI talks about “a ‘bridging’ pension to provide an income until State Pension Age – not means-tested – and with compensation for losses for those women who have already reached their SPA”.
Use of the Jobseeker’s Allowance (JSA) has been mooted for the gap between age 60 and the new SPA (what WASPI means by a “bridging pension”). The JSA comes with eligibility conditions, however, not to mention being subject to means-testing; WASPI rejects both of those aspects.
6. The author of this report is Howard Reed of Landman Economics, working to a commission by the SNP Westminster Parliamentary Group. It’s an excellent, in-depth analysis of the subject. The additional cost concerned increases from £0.2 billion in 2016/17 to £2.8 billion in 2020/21.
7. According to the commentary, it was Howard Reed who said this. I can’t find anything of this in his report or elsewhere, however, which means that I can’t verify that attribution.
8. Lin Phillips of WASPI included the following in her oral evidence to the Work and Pensions Committee in December 2015:
“… We are being told that there isn’t any money but there is a huge surplus in the NI fund. In 2012 there was £112 billion. Now I think there is only under £24 billion.”.
Seriously misinformed. I’m astonished that no-one on the WPC corrected her.