Around 15,000 women will fail to qualify for entitlement to the basic state pension, despite earning enough money from multiple jobs to put them above the Lower Earnings Limit, claims the Department for Work and Pensions.
In his blog on the DWP website, James Purnell, Minister for Pension reform, admits that while the reforms currently going through Parliament in the Pensions Bill will mean over 90% of women will receive a full BSP from 2025 compared to around 30% today, 15,000 women will not earn enough to qualify for the BSP.
He says: “Some people will still not accrue a full State Pension, even after our reforms, for a number of reasons - perhaps because for a part of their working life their earnings were below the ‘Lower Earnings Limit’. But over the past few months the Department’s analysts have been trying to find out a little more about these people.”
As a result the DWP has produced a four-page factsheet which examines the number of people – mainly women – who have more than one job but are not earning enough in any one of them to build entitlement to State Pension.
Purnell says the DWP’s analysis in its 2005 report “Women and Pension: the evidence” suggested fewer than 50,000 women were in this position between 2003/04, but the Labour Force Survey – which provides the evidence for the factsheet – says this has decreased to 15,000 women and around 5,000 men.
The Minister argues this represents just 0.1% of the current working age female population of around 12.4 million, as only around 5% of these, or 575,000 have at least two jobs.
However, the factsheet reveals around 65,000 women earn less than the LEL in each of their jobs, although the DWP suggests although they are not building up entitlement to the BSP through earnings they could be accruing credits through caring or benefits.
As a result it suggests 25,000 women are currently in two jobs that each pay below the LEL and are failing to build up entitlement through other means, with the DWP suggesting these tend to be older women, as the younger generation are more likely to have dependent children or be accruing entitlement through ‘starting credits’.
It adds the findings confirm “earlier indications based on the Family Resources Survey – that the group of people whop could accrue State Pension as a result of earnings aggregation is likely to be small”.
But the DWP says it plans to continue “investigating the groups of people who may not be entitled to a full BSP after the Pension Bill reforms” with the results expected to be announced in the summer.
The findings follow concerns raised by many in the industry about the effect of means-testing on the proposed system of personal accounts, and the advice available for people to decide whether it is in their interests to opt-in or out.
At the moment the Treasury has commissioned Otto Thoresen, chief executive of Aegon UK, to conduct a review into the development of a national approach to generic advice to help people with financial decisions.
However Baroness Hollis last week expressed concerns about the possibility of mi-selling – particularly with women over the age of 45 - occurring in personal accounts, as women have “messy and untidy” lives and will be unable to predict whether it is in their best interests to save.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
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