An improved pension deal for women is long overdue

Designed for the past, the present system needs drastic reform to make it fair, says James Daley

It's amazing that, at the start of the 21st century, an article about gender discrimination in the UK pensions system still needs to be written at all. With the Labour Government now into its ninth year - a Government that claims to count gender equality among its key priorities - it is remarkable that the endemic prejudice in the national pension system was not eliminated a long time ago.

It's amazing that, at the start of the 21st century, an article about gender discrimination in the UK pensions system still needs to be written at all. With the Labour Government now into its ninth year - a Government that claims to count gender equality among its key priorities - it is remarkable that the endemic prejudice in the national pension system was not eliminated a long time ago.

Yet almost 30 years after Barbara Castle took the first major steps towards closing the pensions gender gap - a crusade cut short when the Labour Party lost power in 1979 - the UK pensions system is still hopelessly out of date.

Baroness Hollis of Heigham, who until last month was a minister at the Department of Work and Pensions, and who is a leading campaigner on women's pension rights, sums up the situation: "The existing system comes from the ration book era - where the mother stays at home, the father goes out to work, and they stay together forever and live happily ever after. It's just not like that anymore."

The main failure of the current state pension system is that it has not kept up with the changing lifestyles of women over the past 60 years. Today, the vast majority of women work, and while many take career breaks to look after children, the majority return to the workplace, either part-time or full-time.

Although Barbara Castle's home responsibility protection (HRP) scheme still helps to ensure that women caring for children do not lose out on the credits that they need to qualify for the basic state pension, the HRP is a net with some large holes in. Those who work part-time, for instance, and earn below the lower earnings limit (about £80 a week), do not get any credits towards their basic state pension entitlement, but don't receive the protection of the HRP scheme either. And women with fewer than 10 years of national insurance contributions still don't qualify for basic state pension at all.

The HRP is only payable in full-year blocks - so women who take part of a year out to care for a child or relative will get no benefit. And for those already in retirement who took time out to care for children before the HRP was conceived, there is still no way of retrieving the credits they have lost.

In a speech to the House of Lords at the end of last month, Baroness Hollis, said: "We encourage women to make decent choices that we as a society want - and then we punish them for it. We need to adjust our vision to respect reality. Pensioners are women and pensions are for women, but for far too long, pensions policy has been designed for men."

When the bones of today's system were created, it was expected that most women would marry and stay married. Hence, under the current system, any man who has built up a full entitlement to the basic state pension also gets a further 60 per cent for his spouse if he is married. But the majority of women over 65 are single or widowed, missing out on the support that the state has designed for them.

Opinion over how to solve the flaws in the state pension system is divided. While Gordon Brown's pension credit, introduced two years ago, has helped to pull many existing female pensioners out of poverty, it also provides a perverse disincentive for younger people to save - hence its days appear to be numbered. Furthermore, there is still a significant number of pensioners who have failed to take up their pensions credit entitlement.

Baroness Hollis believes that a universal basic state pension is the way forward, providing a standard basic state pension for everyone, regardless of national insurance contributions and marital status. This is a view in part supported by the Liberal Democrats. The Lib Dems are calling for a rate of £109 in a package they call the citizen's pension, which has a few subtle differences to the universal option.

Lord Oakeshott, the Lib Dem spokesman for pensions in the Lords, says a real cross-party consensus is developing on pensions: "Only 13 per cent of women retire with a full state pension in their own right. It's time to get rid of this disgraceful discrimination over women's pensions. The Turner report [due in the autumn] will have a chance to end poverty pensions for women."

Aside from the citizen's and universal pension proposals, the other view, supported by the likes of Age Concern and the TUC, is to tinker with the existing system. But Alison O'Connell, director of the Pensions Policy Institute, believes this plan would not provide a comprehensive solution in the same way a universal or citizen's pension would. "You can keep with the current contributory system, but you can't make the changes retrospective, and you would have to admit that there would still be gaps in the system," she says.

Ros Altmann, a Government pensions adviser, agrees with O'Connell adding that suggestions by the TUC to compel people to save would be a disaster. "If a system doesn't work, you don't make it work by forcing people into it. People need to start thinking completely differently."

O'Connell points out that the state system is only part of the problem for women, with many missing out on decent private pensions as well. Women are still paid less in the workplace and so have less to save. They also tend not to accrue the same pension entitlements if they are undertaking part-time work to fit around caring for children.

Women also live longer than men - so that when they come to buy an annuity with what private pension they have amassed, it will buy them significantly less than they would get if they were a man.

Although progress in levelling the playing field has been slow over the past 30 years, there at last appears to be a new momentum behind the cause.

Last week, Vera Baird, the MP for Redcar, put down an early day motion in the House of Commons, calling for urgent action on women's pensions - it has already received more than 80 supporting signatures from other MPs.

Last year's Pensions Commission report by Adair Turner devoted a whole chapter to this issue. If the new Work and Pensions Secretary, David Blunkett, does not seize the momentum and take some radical action to update the current archaic regime, then many more women may find that the gift of longevity is a curse rather than a blessing.

'My next priority is about buying a property not getting a pension'

Mel Scothorn, a 28-year-old recruitment consultant, has no pension at all. Like most women her age, she admits that it is barely something that she has thought about yet, and concedes it comes fairly low on her list of current financial priorities.

"I did start a pension for a couple of months with a company once, but then I left," she says. "I haven't really thought much about it since then, to be honest."

Mel moved to London from Leeds in February, since when she has been in the process of selling her old house and consolidating her financial position. "I can't really afford to start a pension now," she says. "I've got a car and I've got my student loans to pay back as well."

She admits that she hopes to have children in her thirties, but confesses she hasn't considered how that might affect her ability to save. "It's never even crossed my mind. Retirement seems a long time away. My next priority is thinking about buying a property, not getting a pension."

'I don't have faith in the state's ability to provide'

Ashley McEwen, a 36-year old mother from London, moved to the UK from the US 12 years ago. Working on a contract basis in the film industry, she was not offered any pension by her employers in the early part of her career, but finally began saving for her retirement in her late twenties.

When she took maternity leave from her most recent job - as PA to a chief executive - she says she was prevented from making additional contributions to her pension.

When she asked to resume her position part-time, her request was initially rejected. With the cost of childcare, she now says she can't afford to go back to work part-time unless she can find a job as well paid as her last. Although she will continue to get credit towards her state pension until her child reaches 16, she remains sceptical about the state's ability to provide her with a meaningful pension.

"Pensions in this country are a nightmare," she says. "I doubt my state pension will be worth anything by the time I need it."

'I'll have to work well past 60 to pay off my mortgage'

Patricia Lunn, a team manager in a call centre in Plymouth, turns 60 this year. Having worked for more than 40 years - taking time out to bring up her three children - she was recently told she didn't qualify for full basic state pension.

But after appealing to the Department of Work and Pensions, she was eventually awarded the full amount, based on her husband's national insurance contributions.

Even with a full basic state pension, Patricia admits that she expects to work well beyond her 60th birthday. Having paid for her children through higher education, she has little in the way of private pension savings. Her current employer has a retirement age of 62, new government rules will soon be in place, allowing Patricia to at least work in her current job until 65.

"I'm not near the position I thought I would have been at this stage, having worked as hard as I have," she says. "I'll have to work well past 60 to pay off my mortgage."