Women and Pensions Report: Mind the generation gap November 2011

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1 Women and Pensions Report: Mind the generation gap November 2011

2 Foreword The debate on how to close the nation s mammoth savings gap continues to rage and regularly at the fore of that debate is the issue of pension provision for women. Much of the recent debate around the Pensions Bill focussed on the acceleration of the increase in state pension age to 66, which would have led to many women receiving their pensions two years later than they previously expected. A late amendment reduced the impact on that group. Proposed changes to public sector pensions also have a significant impact on many women, who are more likely than men to be employed in public services, especially as they near retirement. The introduction of automatic enrolment and NEST are expected to benefit many women who currently have no pension provision. This year s Scottish Widows Women and Pensions Report is therefore more topical than ever. While some progress has been made since we published our first report in 2005 as you will find in this document much remains to be done, particularly with a growing generation gap to go with the existing savings gap. Women in their fifties may be far better prepared than last year (but although they continue to lag their male counterparts) younger women are being left behind. While younger women may naturally look to their mothers experiences when starting to plan for retirement, the circumstances of the two generations are very different. Younger women are more likely to receive a higher level of education than their mothers and earn comparable amounts to men, but are less likely to benefit from defined benefit pensions and need to take control of their own retirement. There is clearly much to chew over and more to be done to prevent a trend developing into a more serious issue. We hope you find this year s report interesting and informative reading but more importantly that the Report continues to raise awareness of the issues around pensions and long term saving for women. We are very grateful to pensions industry expert Rachel Vahey for her help and expertise in preparing this report and also to the Pensions Minister Steve Webb, MP and former shadow Pensions Minister (now shadow Chief Secretary to the Treasury) Rachel Reeves MP and Hilary Evans, Head of Public Affairs Age UK, for their insightful contributions. Toby Strauss Group Director, Insurance, Lloyds Banking Group

3 Contents Executive Summary 2 Introduction 4 Part 1: The current Situation? 6 Part 2: The Growing Generation Gap 8 Part 3: Mothers and Daughters 12 Part 4: Potential Solutions 16 Part 5: Conclusions 20 1

4 Executive Summary The Gender Gap is closing The Scottish Widows UK Pensions Index shows the gender gap is closed completely. 53% of men are saving adequately for retirement compared to 50% of women. This doesn t mean, however, that the gap has closed. Surprisingly, where women do save, it tends to be a higher percentage of income than for men. However, because their earnings are much lower, the average monetary amount they re putting aside is significantly less than for men. There is still more the UK can do to improve women s saving in general and saving for retirement in particular. The growing generation gap There is a growing generation gap. Only 46% of women between 30 and 50 are saving adequately for retirement compared to 56% of women aged 51 and above. However younger women understand the need to save. 56% of women under 30 don t believe they are preparing adequately for retirement. Younger women s long-term savings are low. Better triggers and encouragement are needed to help them save. They have twice as much unsecured debt as older women. The mean amount women under 30 owed in forms of credit (excluding mortgages) was 13,708 compared to 7,854 for women over the age of 50. Only 29% of women between 18 and 30 believe the quality of their employer s pension scheme is important compared to 41% of women over 50. Younger women in particular believe cash is king. We need to educate them on the benefits of equity saving, but also of making the best use of their love of cash. 54% of women between 18 and 29 believe cash saving will ensure they have a reasonable standard of living compared to only 40% of women over 30. Women put more faith in property, with 29% believing income from property downsizing or sale or rental will help ensure they had a reasonable income in retirement compared to 26% of men. Mothers and daughters Daughters are living different lives to their mothers. A new generation of women is emerging. The new generation of women is better educated, more financially independent and better paid. There are more female students (57%) than male students (43%) studying in the UK. The full-time gender PAY gap fell from 12.2% in 2009 to 10.2% in There were 72,000 women in the UK with liquid assets of more than 2.5m. 29% of mothers now work full time. But they face specific challenges, which will impede their ability to save. More than a million unemployed women in the UK. The cost of 25 hours of childcare each week for an under 2 is now over 5,000 a year. Older women are saving over twice as much as younger women for their retirement; 122 (excluding property or pension investments) each month compared to 55 each month. 2

5 Younger women are more influenced by their mothers experience but are aware their retirement won t be as financially secure. 30% of women under 30 say their mothers experiences have had an influence on how much they save for retirement compared to 20% of women over % of women over 50 expect their retirement to be more comfortable than their mothers, compared to 22% of women under 30. Younger women place importance on the older generation of family and friends as a source of advice. Over half of women under 30 (56%) would go to parents and grandparents for advice on financial decisions. However, because their lives are so different to that of their parents and grandparents, it may not be advisable for women just to seek one source of information when making financial decisions. Instead, they should consider more sources. Younger women need to acquire the savings habit at an earlier age, before they have children and whilst they still have a higher level of disposable income. Potential solutions Younger women are falling behind in the need to save adequately for retirement. We need to consider whether automatic enrolment will help to build early savings habits and what else can be done to encourage women to save. 1. Automatic enrolment may help younger women start to save as it harnesses apathy. 43% of younger women will choose to remain enrolled compared to only 26% of women over 50. However, to be successful the culture surrounding automatic enrolment has to be right. Almost half (49%) of women under 30 agreed they would opt out because of lack of money. 2. Younger women in particular rely on older friends and family for information. We need to widen out the trusted sources of advice for women, so that they seek help from other places than the older generation. The DWP s information campaign should deliver this. 3. Employers need to be encouraged to give more information and help in the workplace. This could be through increasing the cap on financial advice from 150 each employee, perhaps to 600, or encouraging employers to provide web-based financial education tools, through a best practice recommendation by the Pensions Regulator (tpr). 4. We need to continue to explore ways of linking ISAs and pensions, to allow people to save both short and long term at the same time, which will hopefully overcome some resistance to saving due to affordability. Possible ways include using ISAs as feeder funds for pensions, making ISAs an employment benefit, allowing part of the 8% automatic enrolment contribution to be paid to an ISA and merging ISAs and pensions. All these possibilities need to be explored in more detail. 3

6 Introduction The Scottish Widows Women and Pensions Report is now in its seventh year. Since 2005 we have measured the level of pension saving by women in the UK and followed their changing attitudes towards retirement. The results from our 2011 survey make for positive reading. The Scottish Widows UK Pensions Index, which shows those saving adequately for retirement, has, for both sexes, risen from the dip experienced in This suggests people have found it easier to save than in previous years following the financial crisis. Even more encouraging is the fact that the Pensions Index for women has increased significantly over the last year, from 43% in 2010 to 50% in The gender gap for saving appears to have reduced in the last year at least. Chart 1: The Scottish Widows UK Pensions Index those saving adequately for retirement. Men Women This does not mean, however, that the gender gap has disappeared. There is still a higher proportion of men saving adequately than women, mainly due to the well-documented reason of affordability. Women, in general, earn less than men; have more career breaks; and have less disposable income, all of which follows through to the amount they feel able to save. Surprisingly, where women do save, it tends to be a higher percentage of income than for men, 12.9% compared to 12.6% for men, including any employer contributions. However, because their earnings are much lower, the average monetary amount they re putting aside is significantly less than for men. (1) A closer inspection of the Pensions Index for women, however, highlights that although women are increasingly saving more, there is a growing generation gap with a greater proportion of older women saving adequate levels compared to younger generations. On a positive note, significantly more older women are saving at an adequate level in 2011 than

7 This report starts by examining the current situation for women savers; how they feel about the financial environment and what effect legislative changes have had for women over the last year. It then goes onto examine in more depth why the savings generation gap for women exists and possible reasons why it has extended over recent years. Part three examines how the experiences of their mothers have shaped and changed the way daughters view retirement, and whether their mothers experience has encouraged them to save more for their retirement. Part Four looks at whether the planned pension changes for automatic enrolment, due to start in 2012, will help to reduce the generation gap for women and what else could be done to help encourage younger women to save more. The survey We have looked at data from an in-depth online survey of 5,200 adults aged 18 and over in the UK conducted by YouGov between 4th and 11th March The aim of (Reform of the State Pension System) is to simplify the current system and provide people with a much better idea of what they will get from the state. However, given increases in life expectancy it is vital that the State Pension remains sustainable. Steve Webb MP, Pensions Minister 5

8 Part 1: The Current Situation The current financial landscape Since the financial crisis hit in 2008, the UK has been experiencing low (or negative) growth, (2) consistently very low interest rates, (3) rising inflation (4) and rising unemployment. (5) Our survey asked both men and women how they felt about the current economic situation. Both genders were gloomy about the current landscape, but women more so than men with only 7% optimistic compared to 13% of men. This general feeling fed through to their view of their own particular situation with fewer women optimistic about their financial position in both the short and the long term, although both genders felt happier about their own position than the UK s in general. This trend continued with 36% of men feeling optimistic about retirement, compared to 28% of women. Chart 2: How optimistic are you about your financial position? (includes very optimistic, optimistic and somewhat optimistic replies). Men Women Policy changes Since the Coalition Government came into power in May 2010, changes to pension policy have accelerated, for both private and state pensions. The plans for automatic enrolment, due to start in 2012, have continued, with the government making some changes to the policy detail that, we believe, will help both employers and employees and hopefully add to the success of this important initiative. The rules for tax relief on pension contributions have been changed from the seemingly cumbersome and unworkable rules introduced two years ago to a more simple lower annual allowance. The requirement to buy an income at age 75 has been abolished, even allowing some at retirement to withdraw the whole of a pension pot (less tax) if they are in a financial position to do so. There have also been some important changes to state pension policy. A triple lock has been introduced for the current basic state pension to make sure it continues to rise, and the Government looks set to introduce a single tier 140 state pension for all, known as a universal or citizens pension. 6

9 There are three policy changes that affect women in particular: 1. Higher state pension ages. The Coalition Government has accelerated plans to raise the state pension age for women. It wants to raise the pension age for women to 65 by 2018 as a prelude to both female and male pension ages rising to 66 by October2020. The introduction of this higher state pension age emphasises the importance of women being aware of how much state pension they will receive and when this will come into payment. This way women can be prepared for this change and can explore options such as working for longer or using private pension saving (if available) to plug the gap until they receive their state pension. 2. Unisex annuity rates. The European Union has ruled that gender-specific annuity rates cannot be used in the future, and from December 2012 only unisex annuity rates can apply. As actuaries assume men will, in general, live for less time, men receive higher annuity payments, typically about 10% higher than women for the same accumulated pension fund. This change should, by the end of 2012, increase the annuity payments women will receive, giving those women who have accumulated a defined contribution pension pot a slightly better income in retirement than they would otherwise have got. However, the combined effects of lower interest rates, increasing longevity and Solvency II will mean that annuity rates are likely to remain at historically low levels. 3. Public sector pension reform. The Coalition Government has pressed ahead with its plans to reform public sector pensions. Lord Hutton had been commissioned to report on possible changes, and has recommended increasing retirement ages to state pension age for most staff, increasing contributions, and changing final salary pension schemes to ones where the pension will be based on career averages. Our survey shows that 34% of women are working in the public sector compared to 23% of men, and these reforms will therefore affect them more. Women need to be aware of the changes, and what this will mean for them, whether it is higher contributions or a later retirement age, or both. In the long term, we need to make sure that the pensions system reflects current trends in the workplace and beyond. Rachel Reeves MP 7

10 Part 2: The growing generation gap As one gap closes, another opens The 2011 Scottish Widows Pensions Index shows that the gender gap between men and women is narrowing, and women are increasingly saving more, although still not as much as men. Chart 3: Scottish Widows Pension Index by gender. Men Women There may be several reasons behind this development. There could be a change in attitude towards saving and retirement, with women feeling they are more self-sufficient and less willing (or able) to rely on other family members. Or more women could feel they understand their current situation more, particularly those working in the public sector given the publicity around the Hutton Report. Whatever the reason, this is a positive development. However more can be done to equalise the sexes. Our research shows women are still not saving as much as men, or as much as they should to have a comfortable financial later life, partly because women earn less than men. (6) Women of all ages are less likely to save more because they feel they can t afford to. Because women start from a worse position than men they earn less, they have more career breaks, and they may retire earlier this means that unless women save a greater proportion of their salary than men, their savings levels will always be lower, resulting in a lower income in later life. Our survey shows, however, women who are 51 or over are in a better position than last year, whereas younger women have remained in the same position. So although the gender gap is narrowing, another gap the generation gap is growing. Possible reasons why include the different experiences of these generations. The older generation the baby boomers have enjoyed financial affluence over the years. They are more likely to be members of defined benefit pension schemes; to have built up equity within a property; and to have lower levels of debt, such as student loans. Such financial backing will place them in a more comfortable position where they may feel they can afford to save more. But the reasons behind the growing generation gap could go deeper than that, into the habit and approach different generations take to saving. 8

11 Chart 4: The Scottish Widows UK Pensions Index for women by age Younger women are particularly aware they can t rely on a partner s pension for their retirement. Only 4% of women under 30 with a partner and no pension of their own believe their partners pension will keep them both comfortable in retirement compared to 14% of women above the age of 50. Worryingly, only 16% of women who are divorced and have a pension said pensions were discussed as part of their divorce settlement. There are a couple of possible explanations. Either the pension is not being taken into account on divorce (despite being a legal requirement), or divorcees are not aware of how such an important asset is being dealt with within the split of matrimonial assets. As the pension is often the second biggest asset (after the house) this is a serious issue. Do as I say not as I do There is evidence within the 2011 survey that, generally, younger women are just as aware as older generations of the predicaments they face in later life and that they need to save for retirement. 56% of year old women don t think they are preparing adequately for retirement. Younger women also realise governments won t necessarily be able to help more in later life. Only 12% of women under 30 believe it will contribute the most income in their retirement, compared to 28% of women over 50. This should indicate a growing financial independence amongst younger women. However, despite this knowledge there is evidence that younger women in particular aren t saving enough. This could be because they face different obstacles to saving than older women. Women also realise they will have to work for longer. The survey shows the traditional concept of men retiring at 65 and women at 60 is becoming a thing of the past, and instead women are increasingly expecting to retire at the same age as men. The mean age men would like to retire is 62, and for women is just slightly lower at However, neither age is likely to be realistic for most, especially given state pension age increases. 9

12 Debt. Rising levels of debt in the UK is one of the key reasons people feel they are unable to afford to save either for short term or, especially, for the long term. Average household debt in the UK is 8,064 (excluding mortgages). This figure increases to 15,507 if the average is based on the number of households who actually have some form of unsecured loan. (7) Younger generations appear more willing to live with an accepted level of debt, and student debt is a growing part of that. At the end of the financial year 2010/11 the level of student debt in England was just over 35,000m, an increase of over 15% on the previous year. (8) 43% of women aged 18 to 29 have student debt, compared with 38% of men. Chart 5: Credit commitments (women). Overdraft Credit/Store Card Our survey found that younger women owe almost twice as much unsecured debt as older women. The mean amount owed in forms of credit (excluding mortgages) was 13,708 for women aged 18-29, compared to 10,140 for women between 30 and 50, and 7,854 for women over the age of 50. Pensions. Younger women have different pension arrangements and different attitudes to pensions than older women. Fewer younger women are currently contributing to a defined benefit scheme or have frozen defined benefits. 16% of women between 18 and 29 are currently contributing into a defined benefit scheme compared to 30% of women over the age of 50. One of the reasons is because fewer younger women, 23% work in the public sector. The majority of open defined benefit pension schemes exist in the public sector. Younger women place less importance on employers pension schemes. Only 29% of women between age 18 and 30 said the quality of pension scheme would be important to them on changing employer compared to 44% of women between 30 and 50, and 41% of women over age 50. Long-term saving. Despite understanding the need to save long term, our survey points to the overwhelming evidence that younger women aren t saving as much as they should. The mean amount women aged between 18 and 29 are saving for their retirement (excluding investment in house or pension) is 55 each month, compared to 122 for women over the age of 50. Younger women have different savings habits. They are more likely to save from time to time (35%) than regularly (32%), and almost one in two under 30s women s savings are short-term. 10

13 Chart 6: Mean amount saved (excluding house and pension). Chart 7: Those who think the following will ensure they have a reasonable standard of living in retirement Cash Saving Investment bonds, endowments, equity ISAs Stock and shares % Men Women Men Women Men 51+ Women 51+ Younger women therefore understand the need to save, but aren t following through on the action to save. Affordability remains the key reason both genders don t save, however, our survey shows that it is less important for younger women. The lack of spare money is a key reason not to currently save into a private pension for 66% of women between 30 and 50, compared to 48% of women between 18 and 29. Other obstacles of higher levels of debt and different attitudes to both pensions and long-term saving could be having an effect on the younger age group. This doesn t mean they have given up completely on the idea of saving. 54% of women under 30 who don t currently save in a pension say they intend to start within the next 10 years, significantly more than the 45% of young men under 30. (Whether they do or not remains to be seen.) Cash is king Younger women have different expectations than older female generations about how their income in retirement will be sourced. They have more faith their cash savings (including cash ISAs) will help them ensure a reasonable standard of living. But they don t have as much belief in equity-backed investments as older women or even their male counterparts. Despite this belief, the survey isn t showing that younger women are investing in cash. Only 19% of women under 30 are currently investing in cash savings compared to 40% of those over the age of 50. Younger women are showing themselves to be very cautious, preferring the idea of investing in cash. But again, they are showing that although they believe one thing, they are failing to follow through with action and actually save for retirement The UK s love affair with property also continues. There is evidence within the survey that women are slightly more likely than men to rely on their property as their pension. 29% of women believed income from property downsizing or sale or rental would help ensure they had a reasonable income in retirement, compared to 26% of men. There was, however, no real difference in attitude towards property between younger and older women. 11

14 Part 3: Mothers and daughters Part of a possible explanation for the action of the younger generation of women and their attitude to finance and saving might lie in the experiences of the cohort and how they differ from the experiences of their mothers. Women s lives have changed dramatically over recent years, and continue to develop in different ways than their mothers, as the next generations face different challenges to their parents. The new generation of women This new generation of women are better educated, more financially independent, and better paid. Possible explanations for this range from women living longer, women are more independent than in the past and there are more female entrepreneurial role models in today s world. More women than ever before go onto higher education. In the academic year 2009/10 there was a higher proportion of female students (56.6%) than male students (43.4%) studying in the UK. (9) This gender imbalance was more pronounced among students studying part-time of whom 61.3% were female. Women are becoming more financially independent. 89% of working women under 30 agree that I am taking greater control of my personal finances nowadays. And the recession has driven this trend with over two thirds (68%) of working women agreeing that the recession has encouraged me to take control of my personal finances. (10) Women are better paid than before. The full-time gender pay gap narrowed between 2009 and For full-time employees the pay gap is 10.2%, down from 12.2% in (11) This is the biggest fall in the gender pay gap since the current methodology was introduced in Younger women are faring much better than the older generations. Women working full time in the age group earned 2.1% more than men, whereas full-time men in the age group earned 17.4% more than women. There are more women millionaires. For the first time in 2011, more than 100 of the 1,000 people on the Sunday Times Rich List in the UK are women. (12) In addition, figures show the number of female multi-millionaires has risen by 40% between 2005 and 2010, and that in April 2010 there were 72,000 women in the UK with liquid assets of more than 2.5m. (13) The proportion of women millionaires is set to rise, with predictions that female millionaires in the UK will outnumber male ones by 2020, and by 2025 women will control 60% of the nation s private wealth. (14) There are more working mothers in the UK. The gap in employment rates for women with and without children has narrowed over the last fifteen years, from 5.8% in 1996 to just 0.8% in the final quarter of Not only are more mothers working, but they are also choosing to work full time. In 1996, 23.1% of mothers worked full-time, increasing to 29.0% by the final quarter of Over the period the percentage working part-time has remained stable. In the final quarter of 2010, 37.4% worked part-time. (15) 12

15 However, this new generation of women also face specific challenges. Unemployment amongst women is growing. The number of unemployed people was 2.49 million in the three months to June 2011, an increase of 38,000 and up 32,000 from a year earlier. The number of unemployed women was 1.05 million in the three months to June 2011, up 21,000, the highest figure since (16) The main driver behind these figures is probably the cut in public sector jobs. The number of men being made redundant is 1.5% down, the number of women being made redundant is up 1.6%. While the average number of redundancies across all sectors is up 4%, the number of redundancies in Public Administration is up 19% on the previous year. Childcare costs are rising. In 2011, childcare costs typically increased by more than the average wage. The average yearly expenditure for 25 hours nursery care per week for a child under two is 5,028 in England, 5,178 in Scotland and 4,723 in Wales. (17) These rising costs will make it more difficult for women to return to the job market after having children, on either a full-time or part-time basis. It will also make it more difficult for them to save. The new generation of women are in a better financial position than previous generations. However, younger women still face some of the same challenges as their mothers and grandmothers. The gender pay gap still exists and women still take time out of the workforce to have children. On their return, they are more likely to be working part-time than their male partners, and be juggling the roles of managing the house and childcare with their job, perhaps curtailing their working hours and the flexibility to make career moves. This will have a knock-on effect on financial decisions and saving for retirement, leaving women in a worse position than men. Mothers influence Given the differences this generation has experienced, it would be interesting to establish to what degree they are influenced by their parents. In the 2011 survey we asked some specific questions surrounding the experiences of mothers and daughters to establish whether the actions of the younger generations were shaped by the experiences of the older. It is worth remembering that the mothers of the age group of women aged are themselves now just approaching retirement, and some are part of the wealthier and (some would argue) luckier baby boom generation, having experienced membership of defined benefit schemes, rising equity in property and increasing stock markets. In contrast, the mothers of the 50 plus age group would now all be in retirement. These mothers may have experienced harder financial times, perhaps remembering rationing in the 1940s and 1950s. The results of the survey show that younger women are not unsurprisingly more influenced by their mothers experience, with 30% of the under 30 age group saying their mother s experiences have had an influence on the amount they save for retirement, compared to only 20% of the women aged 51 and above. They could be more heavily influenced because they are younger and less sure of themselves, or because their experiences more closely match those of their mothers, whereas the older age of women surveyed may have had a vastly different type of financial life to their mothers. 13

16 Chart 8: Those who agree that their mothers experience has had an influence on the amount they save for retirement. Chart 9: Those who agree they expect to feel better prepared financially for retirement than their mother % Age Group Younger women are perhaps aware that their retirement won t be as financially secure as their mothers and only 22% of those under 30 think it will be more comfortable. This contrasts with the expectations of the older women surveyed. 32% of those aged over 50 expect their retirement to be more comfortable than their mother s, perhaps because they have built up more financial assets, through better savings and pension schemes and home ownership. When it comes to considering whether they expect to be better financially prepared for retirement than their mothers, the younger generation of women feel less ready. Again, maybe unsurprisingly, given retirement is further away. The disconnect comes because although younger women have more information available, are more financially aware, and are less likely to believe they can rely on the government or a partner for retirement income, they are not more suitably prepared for retirement. From the survey we can conclude that although their mothers experiences shape how younger generations of women prepare for retirement, they do not expect to have as comfortable a retirement or be as prepared for it as their mother. We are seeing continued evidence that younger women realise what they need to do for later life, and just lack the impetus to carry it through to saving. Sources of information and advice In today s world there are several different sources people can go to for information and advice on financial decisions, such as pensions and savings. A growth in access to the internet, through computers and increasingly phones, and the subsequent rise in financial advice websites, means that people are no longer tied to advice and information from people they know, but increasingly from people they have never met, but nevertheless trust. However, from our survey we can establish that women generally rely more than men on the advice of family and friends, than other external sources such as independent financial advisers or financial press. 14

17 Chart 10: Which of the following sources are most important to you when making a decision on financial matters? % Friends and Family from older generation Friends and Family from your generation Government Websites Financial advice websites Independent financial advisers Financial Press My Bank/Building Society My employer None of these Importantly, younger women place more emphasis on advice from family and friends, and particularly from the older generation. Well over half (56%) of women under 30 would go to parents and grandparents for advice on financial decisions Chart 11: Which of the following sources are most important to you when making a decision on financial matters? % Men Women Friends and family from older generations Friends and family from your generations However women, and younger women in particular, may be turning to the older generation for advice, but parents and grandparents have had a very different life experience to them and may not be best placed to give advice to young women in If we are to succeed in encouraging women to save more for their retirement, then we need for them to turn not only to one source of advice, older family and friends, but to look at other sources of information as well. Building savings habits early Life is improving financially for today s women. They are in a better financial position than their mothers and grandmothers, and with this come more options. However, there is a concern that today s younger women aren t making the most of their increased choices. They still aren t saving as much as men, or as much as older generations, despite having higher wages than their male counterparts (18) and not having the same financial drag as older women that having children creates. Instead, we are seeing a generation savings gap developing and levels of debt increasing. So, why aren t younger women making the most of the options they have and saving more for retirement? Younger women might be looking too much to the experience of the older generations, rather than judging their own situation. If they pay too much attention to their parents and grandparents, whose experience is so very different from their own, then they may fail to take the right action. Instead, it may be more important to encourage women to save from a younger age. The average age of a first time mother was 27.6 years in (19) The number of mothers aged 35 and over increased 15% between 1999 and The hope is that by building good savings habits with younger women, before they have children and whilst they still have a higher level of disposable income, we can make sure they understand the need to save and carry this on to action. This is better than waiting until they are in their early 30s, to tell them to start saving, just at the time their disposable income dips due to family life. 0 Men Men Men 51+ Women Women Women

18 Part 4: Potential solutions For there to be an uptake in pension provision in the UK, and for women in particular there needs to be an upturn in consumer confidence in long term financial products. Trust in the industry is low, as is understanding of financial products, and together this low level of awareness may go some way to explaining the current low levels of provision. It needs to be easier for everyone to access the right information, advice and products they require to meet their financial needs and as our research shows younger women in particular are likely beneficiaries of an improved environment. Automatic enrolment is likely to be a particularly effective tool in increasing long-term savings. The government and industry should be cooperating to find a way to increase the provision of a helping develop confidence in long term savings. This section looks in detail into some current policy developments that will address improving saving, and also outlines some other potential solutions that are worth investigating. Will automatic enrolment encourage younger women to save? There is now less than a year to go to the introduction of automatic enrolment. From 1 October 2012, in a phased launch, all employers will have to automatically enrol most employees into a pension scheme and pay contributions for them. The employee has a choice. They can continue in the pension scheme and also pay contributions. Or they can opt out. Doing nothing means they stay enrolled. Our evidence shows that younger women realise they need to save for the long term, and their retirement, but they lack the impetus to start saving. The usual triggers for encouraging saving aren t necessarily working with younger women. When asked why they hadn t saved for a pension, almost three in ten women under age 30 agreed they had never thought about it seriously. And women over the age of 30 were more likely to respond to the trigger of qualifying to join a company pension scheme to start saving. While state provision is becoming more equal, there remains a gulf between private provision for men and women due to lower average life time earnings and greater caring responsibilities. Age UK are optimistic that the introduction of automatic enrolment and the National Employment Savings Trust from 2012 will increase private provision among women employees who are currently not saving. Hilary Evans, Age UK 16

19 Chart 12: Qualifying to join a pension scheme was one of the main reasons why I started to save/or would start saving into a pension Chart 13: Will women choose to remain enrolled? % Yes No Not applicable - I have a pension already Don t know Automatic enrolment should help younger women start to save because it is not relying on them to react positively to a trigger; instead apathy or inaction means they will automatically start to save. As most employees will be automatically enrolled from age 22 onwards, this initiative should also help build good savings habits early amongst younger people. The hope is that if they have always saved, they will continue to save for retirement throughout their working life. From our 2011 survey, the early signs are that automatic enrolment and the establishment of the NEST pension scheme will encourage saving, particularly in younger women a key target market for the automatic enrolment reforms. The above graph shows that 43% of younger women believe they will remain in the pension scheme after being automatically enrolled. However, for both sexes and all ages the major reason given for not starting to save (or saving more) is affordability. The Government has now set out the information flow which must surround automatic enrolment. Potential members must be given the right information at the right time. This information flow should help encourage younger women to save. Just over one in four women under the age of 30 say they haven t saved into a pension because they don t understand pensions. This is a higher proportion than for older women (15% of women between 30 and 50), and young men (14% of men between 18 and 29). If it is communicated properly, the information on automatic enrolment should explain how the pension scheme works and why saving is advisable. 17

20 This information flow also needs to tackle the issue of how to make the right investment choices. Our research shows women favour cash investments, however it is arguable that younger women should be investing more in equity-backed funds. We can use this opportunity to educate people about the different investment options, and when, in their financial life, they are suitable. But we need to get the zeitgeist right We need a culture change in UK to embed automatic enrolment and make sure it works. It needs to appeal across the genders and across the generations. We must find a way to make pension saving exciting and interesting; a talking point for friends and family, which will encourage participation. The publicity surrounding automatic enrolment has to focus on embedding it into UK culture. Younger women will consider banks, IFAs and financial press for help and advice. The biggest influence on whether they will remain an automatically enrolled pension member will be whether their parents say this is the right thing to do, or whether their colleague at work also joins and influences them to do the same. If opt out becomes the society norm this will affect younger women more. It is reported that the DWP has 10m to spend on an advertising campaign and will be launching radio and TV ads from January. (20) They should be congratulated for this, however, it is important that they use it to raise awareness for the long-term to create a pensions culture within the UK. In doing so, it needs to think of different ways of delivering information and help, to encourage younger women in particular to rely upon other sources of advice, rather than just the older generation. Financial advice and tools in the workplace An additional idea would be to help employers promote financial advice and tools within the workplace. There are a couple of ways this could be done. At the moment an employer is allowed to spend 150 a year on financial advice for an employee, before it is counted as a benefit in kind. This cap is set very low, given the costs. But face-to-face financial advice has consistently been shown to be one of the most effective ways of getting people to save, and to save the right amount. This cap should therefore be raised, possibly to 600. This may become particularly important following implementation of the Retail Distribution Review (RDR), when the cost of individual advice will have to be agreed between the adviser and the employee, if the employer does not fund it. If the cost is then taken from the pension pot it will have to be explicitly deducted. This may be off-putting to many employees. Another idea is to encourage employers to offer web-based money tools where possible. These help employees identify their financial needs and manage all their finances in one place through a single secure portal, usually available on their employer s intranet. They are a valuable source of financial education and guidance, and allow employees to plan for a better financial future and provide an aggregated view of their finances and workplace benefits. These tools are often provided as part of the package sale of a group pension. To increase take-up, the Pensions Regulator (tpr) could encourage employers to offer these tools as part of a best practice initiative when communicating with employers regarding their responsibilities, as well as recommending on its website that employers should use them. Accessing help and information through the workplace chimes with the survey s results. Where employers provide access to a pension, 55% of all respondents believed these employers should also provide general information about retirement planning, while 40% believed they should offer full financial advice. 18

21 Using the focus on cash to save long term As well as getting the publicity and the information flow for automatic enrolment right, the UK savings industry and Government could explore ways in which we can redesign savings to help younger women save for the long term. The survey pointed to evidence that women and younger women in particular liked the idea of cash savings, that cash was king. It may be that cash savings in particular ISAs can be combined somehow with pensions to create a model that would prove to be attractive, and would help both short and long-term saving. There are four possibilities: 1. Allowing early access from pensions. This concept allows pension savers to access part of their pension say the 25% normally available as a tax-free lump sum at retirement from an earlier date. Restrictions could be placed on access, only allowing it under certain conditions. Earlier this year, the UK Treasury called for evidence on how this concept could be made to work and whether the UK savings industry believed it would be successful in boosting saving. However, the Treasury concluded (xxi) there was insufficient evidence to suggest it would act as an incentive to save more into pensions. This is backed by evidence in our 2011 survey which showed allowing early access would not substantially encourage saving, across all ages of women without a pension. 2. Using ISAs as a feeder for pensions. Another possibility is to allow ISA savings to be fed into pensions to boost pension pots before retirement. This could be attractive to savers. At the moment, affordability is given as a key reason people don t save, and many may feel unable to save for both short and long term. By feeding ISAs through to pensions, people can save short term, and once the savings reach a threshold, the savings can be automatically rolled over into the pension s part of a product. This approach may, in particular, be attractive to younger women. Our survey shows almost one in five women aged under 30 would be encouraged to save if it was easier to move savings between savings accounts, ISAs and pensions. 3. Employer ISAs. Another is to make ISAs a bigger part of company savings schemes. Workplace wraps are growing in popularity with employers. These allow employees the option of paying salary straight into a pension or an ISA. To encourage this growth and the subsequent promotion of saving within the workplace employer ISA contributions could be taxed as a benefit-in-kind, so the employee would not have to pay National Insurance Contributions on the value of the ISA contribution. However, any promotion of ISAs within the workplace needs to fit within the new automatic enrolment requirements. It could be that part of the 8% contribution could be paid to an ISA and part to a pension. 4. Merging pensions and ISAs. A final possible solution is to create a new type of savings account that merges ISAs and pensions. This might encourage and increase long term savings. ISAs and pensions could be merged under a single tax regime, with an overall contribution limit of, say, 50,000. This approach makes the best use of the popularity of ISAs with the UK population, whilst simplifying the savings landscape and making it easier for people to choose an appropriate vehicle to save within. The UK Treasury concluded from its consultation earlier this year that there was appetite from the respondents to further explore the potential role of feeder funds and other workplace savings vehicles, such as workplace ISAs, in encouraging individuals to start saving earlier and more consistently throughout life, and improving the link between shorter and longer term savings. In the summer, the Treasury kicked off an informal consultation to explore how the development of new savings models such as feeder funds and workplace ISAs could be further facilitated within the existing pensions and savings tax framework. 19

22 Part 5: Conclusions The results from the Scottish Widows Women and Pensions Report 2011 are encouraging. It s good to see the gender gap is finally closing and women are starting to take responsibility for their later life by saving more for retirement. It s also encouraging to see that where women do save they are saving a higher percentage of income in comparison to men. They need to factor in that extra to cover the bumps caused by career breaks and generally being paid lower working incomes. However, from the end of 2012 onwards women will no longer have to deal with comparatively poorer annuity rates; women will receive the same level of annuity as men for the same value pension pot, even though they are expected to live longer. However, we are a long way off having solved women s pension worries. The gender gap may be closing, but it still exists. Although, more concerning is the growing generation gap. The narrowing of the gender gap has arisen because older women are saving more; younger women s savings habits haven t really changed over the last three years. In one way this is surprising. Today s younger women are better educated, better paid and more financially independent than previous generations. Theoretically, they should be saving more now whilst they have the disposable income. However, something is holding them back, debt is playing a large part as more women go onto higher education, student debt is becoming more the norm and another factor could be that pensions still don t have the good press they deserve amongst savers in general. Younger women need guidance to help them form the right savings habits. That needs to be whilst they are young enough to juggle finances to save, before the realities of parenthood and house ownership swallow them up. Starting to save early means they might carry the habit with them throughout life. If they want a decent income in retirement this is a good way of achieving that. It could be younger women aren t getting the right help from the right places. They are, understandably, asking their parents and grandparents for advice. These older generations have a different outlook, and won t have the same challenges and life experiences to those asking for help. To turn around women s savings we need to introduce another trusted avenue for help. Someone else they can turn to for advice on saving. This report details four ways we could do that: 1. Use automatic enrolment, not only by creating an early savings habit, but by using the information campaign that will accompany the launch and roll-out to reinforce why everyone should start saving for retirement as early as they can. 2. Help employers to promote workplace advice by changing the rules so that it won t incur a benefitin-kind tax charge for the employee. If pensions are to be introduced to all workplaces it makes sense employers should be encouraged to promote the benefits of independent advice. 3. Encourage employers to offer web-based money tools to employees. This may help people work out how much they need to save, as well as educating people on the balancing act of saving for short-term events, while still setting aside enough for long-term goals. If employers lack the scope to do this, someone or something else, such as Money Advice Service (MAS), should step into the breach and provide a global solution. 4. Figure out how short-term ISA and long-term pension saving can be more closely aligned. People like and trust saving into ISAs, we need a way of harnessing the willingness to save in an ISA and turning it into a more effective way of saving long term for retirement. One way would be to allow part of the 8% automatic enrolment contribution to be paid to an ISA. 20

23 Steve Webb MP, Pensions Minister One of our key priorities when coming into Government was to deliver improved pension outcomes for women. The fact that women tend to have poorer outcomes than men in the current State Pension system is an issue that has been consistently highlighted. Recent figures confirm that on average women tend to get around 40 less State Pension than men. Women are also more likely than men to be in poverty as pensioners. Reforms have already been taken forward to reduce inequalities for women in the state pension system. Key measures included reducing the number of years needed to qualify for a full basic State Pension to 30 years and introducing more generous credits for carers to ensure more people, particularly women, could become entitled to a higher level of State Second Pension. The increased generosity of the crediting arrangements for parents and carers, for example, will mean up to one million more individuals (around 90% of whom are women) will be accruing State Second Pension credits. However, it will still take a further 30 years, until 2050, before women reach comparable outcomes with men in the State Second Pension system. We are, therefore, considering two options for significant reform of the State Pension system: an accelerated transition to a flat rate State Second Pension; or a flat rate single tier pension (currently estimated at around 140 a week in 2010/11 current earning terms). A flat-rate State Pension would be of particular benefit to those women who were set to receive a reduced pension because of caring responsibilities. Ultimately, the aim is to simplify the current system and provide people with a much better idea of what they will get from the state. However, given increases in life expectancy it is vital that the State Pension remains sustainable. To ensure the State Pension is affordable for future generations we had to act quickly to review the timetable for increasing the State Pension age to 66. Although women will experience the rise in State Pension age quicker than previously planned, even those who will see the biggest relative increase in their State Pension age will still draw the State Pension for an average of 24 years. We are now considering how best to develop a more automatic mechanism to take account of future increases in longevity when considering changes to the State Pension age going forwards. We are also reforming workplace pensions through the introduction of automatic enrolment to encourage and enable people to save more for their retirement. These reforms will see an additional 2-3 million women newly participating or saving more in workplace pensions as a result, many of those for the first time. Enabling all women to achieve good pension outcomes remains a key priority for the Coalition Government. Our plans for a reformed state pension system would finally enable women to build up pension rights on the same terms as men, while the introduction of automatic enrolment from next year will help millions of women to save for a private pension of their own. 21

24 Rachel Reeves, MP The most recent evidence shows that while 35% of people have no pension, 41% of women have nothing put away for their retirement. Last year s Scottish Widows Women and Pensions report showed that 53% of women under fifty thought they weren t saving enough compared to 45% of men. Women are more likely to be under-pensioned than men. Since the last Scottish Widows report, households up and down the country have continued to face a squeeze in their living standards. Nearly one and a half million people stopped saving in personal and stakeholder pension schemes over the course of the recession. And in the last year household incomes have been squeezed further: down 3.8%, it s the biggest drop in family incomes in 30 years and it isn t going to get easier any time soon. It is getting harder for families to put money away. While I am proud that the Labour Government lifted 1.1m pensioners out of relative poverty and 2.1m out of absolute poverty through targeted measures like pension credit, in the long term, we need to make sure that the pensions system reflects current trends in the workplace and beyond. If future pensioners are going to be able to live the life they choose in retirement more people, especially on middle and modest incomes, need to be saving more and we need to make it easier for people to save. To build up savings among those with the smallest pensions, particularly among women, I welcome the fact that automatic enrolment is being rolled out from next year. Seven million more people are expected to start saving as a result. The squeeze on living standards makes the advent of automatic enrolment in to occupational pensions a challenge, but it also makes it even more important that it succeeds. We need to take the opportunity to get people especially those on modest and middle incomes, part time workers and women saving for their retirement. So while I am pleased that auto enrolment is going ahead I am disappointed that the Government has watered it down, excluding up to 1.5m people from its scope by increasing the earnings threshold and introducing a waiting period before employees are auto-enrolled. This is especially worrying when women already save less than men. Young people face specific problems, with high youth unemployment, the increase in tuition fees and house price increases outstripping income rises. For a female who graduates in a few years time, the 30 years they can spend paying off student debt will often include time off work to care for children and periods of part time work. It is anticipated that even after 30 years of paying off student debt, 40% of men and 80% of women won t have finished paying off their loan. 22

25 As well as these long term challenges we need to get the short term right as well. The Pensions Bill, which will see the state pension age increased for 4.9m people has disproportionately affected women aged 57, leaving 500,000 with very little time to plan for their retirement. 33,000 women will have to wait exactly two years to receive their state pension. The women aged 57 who will lose most due to the changes in the state pension age have, on average, 9,100 of savings compared to 52,800 for men of the same age. The reasons for this are varied. Many of the women worked part time and took time out to care and bring up children; some of them weren t able to save into occupational schemes when working part time. 40 years since the Equal Pay Act, the gender pay gap is over 15%, while women in part-time work earn 40% less than men, making it more difficult to build up savings. The Government needs to be fair to women approaching retirement by protecting those worst affected by the proposed increases to the state pension age. Going forward, we must build a fairer system which enables more people to retire with a decent pension. That means making auto-enrolment work: helping young people including women juggle student debt; save for their first home; putting aside something for the future too giving people fair; and adequate notice of changes to the state pension age. That way more people including more women who often have the poorest pensions, can look forward to retirement and all that it has to offer, rather than worrying about how to make ends meet. 23

26 Hilary Evans, Age UK Age UK s views on women and pensions Better pension provision for women is a key aim for Age UK and there has been some welcome progress. Following 2010 changes many more women reaching state pension age now receive a full basic state basic pension, there is better protection for caring responsibilities within the state system, and the basic pension is now uprated by the triple lock. Women still have lower overall state pensions than men but if the Coalition Government s proposals for a single tier state pension of around 140 a week go ahead, this will produce a simpler, fairer system providing a better platform for saving. On the downside there has been much concern and anger from women in their 50s following the Government s measures to speed up equalisation of state pension age and the rise to 66 by We, and the many women who contacted us, agree state pension ages should be equal and accept that life expectancy is increasing, but people need sufficient notice of major changes. Any future reforms must be handled better to ensure people can plan their retirement with confidence. Furthermore while state provision is becoming more equal, there remains a gulf between private provision for men and women due to lower average life time earnings and greater caring responsibilities. For example the median level of private pension savings (DB and DC) for a woman aged 56 is 9,100 compared to 52,800 for a man of the same age. (1)14 We are optimistic that the introduction of automatic enrolment and the National Employment Savings Trust from 2012 will increase private provision among women employees who are currently not saving. But it is essential that the impact of the reforms is monitored. Coalition Government measures to increase the earnings threshold and allow employers to apply a three month waiting period could particularly affect women. And we continue to have concerns about those who will not be covered for example women with two or more low paid jobs. There also needs to be a greater focus on accessing pensions saving at retirement. Many people do not shop around for the best deals and even if they do it can be hard to get a good return from small pension funds. It is disappointing that while the requirement to annuitise at age 75 has been liberalised a reform that will currently benefit less than 5 per cent of savers we are still waiting for reform of the small pots issues that are likely to affect many more. Finally in looking at pension reforms for the future we must not forget those already retired. Of the 1.8 million pensioners living in poverty 1.2 million are women. Many have had limited opportunities to build up private provision and will not benefit from most of the state pension reforms. The Government needs to ensure that tackling poverty and disadvantage among those already retired is given as much attention as improving options for those in the future. (1) Hansard WA 4 Feb 2011, col