Pensions trap for women

As part of a weekly series on women in business, Liberal Democrat MP Steve Webb warns of how many women face a shock over the miserable size of their pension. We regularly see headlines about the gender pay gap, however, the gender pension gap receives considerably less coverage.

For many women the life cycle is one of poorly paid work followed by poverty in retirement.

It is over 20 years since the Equal Pay Act was passed, and yet a new DTI report found that on average women's pay is less than half that of men.

There are some very obvious reasons for the pay gap. For example, many women take career breaks to care for children and many choose part-time jobs.

However, these reasons do not explain the fact that the UK has one of the biggest gender pay gaps in the European Union - in fact only Germany, Portugal and Austria are worse offenders.

Impoverished retirement

The way in which poorly paid work leads directly to poverty in retirement is easier to explain.

It is a popular misconception that everyone gets the basic state pension. In fact, while 92% of males have a full basic state pension, only 49% of women have the same entitlement.

The level of state pension is dependent on the amount of National Insurance that is paid throughout a 'working life'.

An occupational pension is very much dependent on what an employer puts in and what an individual is able to top it up with.

In recent years progress has been made. For example, part-time workers have won the right to join company schemes.

However, for today's pensioners the differences are stark.

Two thirds of men receive an occupational pension, but this is only the case for one third of women.

The average amount for men is £60 per week, whilst for women it is £35.

Women vulnerable

The government's latest initiative to encourage workers to save is the stakeholder pension.

Regrettably, the latest take-up figures are not encouraging. Some 69% of stakeholder pensions have been bought by men and only 31% by women.

Among today's retired population, pensioner poverty is predominantly a female phenomenon.

The vast majority of poor pensioners are elderly widows.

Their poverty comes not only from very low state or private pensions, but also poor widow's pensions, and from the cumulative effect of decades of inflation eroding the value of their savings.

Although means-tested benefits have been made more generous in recent years, many elderly pensioners fail to claim their entitlement, not least because of the complexity of the system.

More money needed

There is an alternative way to target the poorest pensioners.

A far more effective system of delivery would be to increase the state pension, particularly for the oldest pensioners who tend to be the poorest.

A particular cause for concern are those women, many of whom are now in their forties and fifties who paid the married women's rate of national insurance.

Paying this reduced rate has resulted in their entitlement to a basic state pension being drastically reduced.

Examples of entitlement being as little as 7p per week are not uncommon.

A second chance?

Many get a huge shock when they discover on the eve of their retirement that they are only entitled to a derisory state pension.

To leave these women in the dark until the eve of their retirement is unforgivable.

They must be contacted and alerted to their current pension position.

For those who are slightly younger there may be time for them to do something about their pension position by doing some additional saving.

For older women we should consider the option of allowing them to "buy back" some of the missing years of their contribution record in order to ensure that they get some sort of state pension.

It is vital that the government undertakes an urgent study of the pay and pension provision that women receive.

They must then act quickly to prevent future generations of women from suffering the same poverty in old age that has been the lot of too many of their mothers and grandmothers.