It's probably a safe bet that anyone writing an article on pensions for men would be accused of sexi...
It's probably a safe bet that anyone writing an article on pensions for men would be accused of sexism. So why write about pensions for women? Why has the DSS produced a specific leaflet aimed directly at women? Pensions legislation does not discriminate against women, so is it really possible to identify pensions for women as a separate issue?
Historically, women have tended to rely on the State or on their husband for their income in retirement rather than look to private pension provision. They have also been less likely to be members of occupational schemes, for a variety of reasons, including the fact that many work part time. According to Government statistics, women make up 44% of the workforce, but of the women who do work, 45% work part time, compared with only 9% of men.
There is also a link with earnings. For as long as private pensions have been in place, they have been linked to earnings, either directly via salary-related benefits or indirectly via contribution levels. When we remember that national average earnings for women are still around three-quarters of the level for men, there is an obvious knock-on effect for women's pensions. The introduction of the new defined contribution regime in April will break the link with earnings, but it will take time for this to have an impact.
This is not just an issue for women. It is clearly important to the Government since it wants to see more people with private pensions and is aware that there is a serious problem with underprovision of private pensions for women. It is also important to employers since, with the advent of stakeholder, they are taking on increased responsibility to offer their employees access to private pensions. The hope is that this will mean that more women will be offered access to private pensions. Clearly, since pensions are an issue for women customers and for corporate customers who employ women, it is also an important issue for pension providers and IFAs.
Pensions legislation may be unisex in principle, but there are examples where, in practice, the impact is greater on women. The recent changes on pensions and divorce are probably the most obvious example. Pension sharing enables an ex-spouse (husband or wife) to obtain part of the member's pension benefits on divorce. DSS research tells us that, in recent divorce cases, the average value of the husband's pension rights is £50,000, whereas the average value of the wife's rights is £7,000. So the reality of the situation is that it will be women who will take part of their husband's pension benefits on divorce, rather than vice versa. The DSS has gone on record as saying that the legislation on pension sharing could benefit up to 50,000 women a year.
Pension sharing rights
In divorce cases, where the woman does become entitled to a share in her husband's pension (rather than, say, offsetting the value of the pension against other assets), it will be crucial that she takes advice to find the pensions solution that best suits her needs and circumstances.
If her husband works for a public-sector unfunded scheme, her share of the transfer value will secure her benefits in that scheme. But unlike the position with an earmarking order, she will be a member in her own right and her benefits will not be linked to her ex-husband's.
If her husband works for a private-sector funded scheme, she must be offered an external transfer of her share of the benefits. The scheme may, if it wishes, also offer her the option of staying as a member within the scheme. She is therefore likely to be facing a number of choices where advice would help.
First, in these schemes where membership is offered, should she transfer or not? Pension transfers are an extremely complex area, where advice is crucial.
If she does transfer, whether by choice or because the scheme does not offer the option of membership, she must decide what to transfer to. There are a number of options available:
l Personal pensions
l Employer's arrangement (if she is a member), which may be either a group personal pension or an occupational scheme.
Once the appropriate vehicle has been selected there will be further choices to be made best provider, investment funds, and so on. Going by the DSS research figures referred to earlier, if her share is, say, half of the value of the benefits, this could mean an initial amount of £25,000 to put into her own pension. That alone will not ensure a luxurious standard of living in retirement but it is certainly an excellent way to kick-start retirement savings. In many cases, the share of the transfer value could be much higher.
It is also worth bearing in mind that, for many women, the pension share may represent all, or at any rate, a very significant part, of what will be their retirement income it is really important that they take financial advice on making the most of their money.
Some women may also have lump sums from the overall financial settlement on divorce that could sensibly be used for additional pension investment. Or they may wish to make ongoing regular contributions to their new pension contract. From April, this will be easier for many women since they will no longer need to be earning to support payment of contributions.
All this clearly indicates the need for women to take advice in relation to pension sharing. Since this is about pension planning, advice in this context means pension advice rather than more general legal advice on divorce.
Pension sharing covers almost the whole range of pensions from public to private sector, including personal and occupational, money purchase and defined benefit. In fact, the only exception is the basic state pension, where a mechanism already exists to deal with divorce.
Matrimonial lawyers are experts in family law, not pensions, a fact they are the first to recognise. When discussing this issue with matrimonial lawyers it is clear that they will look to IFAs for the necessary pensions expertise.
Sharing in someone else's pension is all very well, but the real answer is to have your own independent income in retirement rather than relying on the state or your husband.
Previous legislative changes have also affected pension provision for women. For example, everyone knows that the state pension age (SPA) is to be raised for women. But how many women have discussed with their financial adviser the extra contributions they need to make if they still want to retire at 60 rather than their new SPA?
Another example: in my experience few women fully understand their right to continue as a member of their employer's scheme while they are on maternity leave. (As an aside, if more women do join employer-sponsored arrangements in the future, this may well become an important issue for many more employers.) In addition, there are the changes being introduced as part of the new defined contribution regime in April 2001, which I briefly mentioned earlier.
In future, it will not only be possible to provide a pension for a non-earning wife (or husband), it may be extremely tax-efficient to do so since basic rate tax relief will be given on all contributions paid by individuals. There is in fact an argument that future pensions planning should be regarded as a joint exercise with the emphasis on taxation issues.
Even the old 'employ your wife' scenario looks set for a new lease of life. Paying your partner a salary of just above LEL would qualify them for S2P benefits equivalent to double the current Serps levels for someone earning £9,500 a year. And of course, as their employer, you can make additional provision for them.
As with the other legislation I have discussed, the principles apply to both men and women.
But in a great many cases these issues will, at least for the moment, continue to have a particular impact on women.
To quote the words of the Pension Provision Group, "People need pensions". People also need advice to help them choose the pension that is right for their needs and circumstances.
Sometimes, some of these needs and circumstances are influenced by gender. Pensions for women is indeed a legitimate topic in its own right.
Margaret Craig is manager, pensions development, at Scottish Equitable
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