Hundreds of thousands of women who are now turning 60 will no longer get inflation-linked increases on a part of their employer's pension – but most of them will be unaware of the change.
Men who turn 60 will still get the increases either until they reach the age of 65, paid by their occupational scheme, or if they reach 65 by 5 April 2016, for the rest of their lives paid by the state.
Part of the reason why there is little public concern about the different treatment of men and women is that few people have mastered the complicated details.
People affected are those who were in an employer's defined-benefit pension scheme that was "contracted out" of the state system between 1978 and 1997. In return for taking the risk of "contracting out" of the safe state system, these workers were promised that inflation increases on a part of their pension known as the guaranteed minimum pension (GMP) would be paid for by the state after they reached state pension age. The Cabinet Office pension scheme booklet for the civil service scheme is one of dozens of booklets and state pension guides that explain the system. The Cabinet Office says that "the Government pays the increase on the GMP part of your pension with the state pension".
When the single-tier pension replaces the complicated state pensions systems of the past, on 6 April 2016, these government-paid GMP increases will disappear for millions of men and women who reach state pension age after that date. The issue is complicated for females who, on top of switching to the single-tier system, are also going through the equalisation of pension ages programme to put them in the same position as men. The Department for Work andPensions (DWP) says that, under principles of sex equality, "a man and a woman with the same work history must receive the same scheme pension in total", and suggests that this means having a transition period in which GMP increases end earlier for women than for men.
Already over-burdened by complicated legislation, the pensions sector has not rushed to explain these issues to workers, so most people are unaware that these forgone GMP increases would over the course of 20 years in retirement add up to £20,000 for the average retiree, according to the actuary Mercer.
A few individuals have taken up the cause. Some have complained to the Parliamentary Ombudsman or the House of Commons Public Accounts Committee (PAC). Some are arguing that women are being unfairly treated (see case study) and some are arguing that the dropping of GMP increases for both sexes is unfair without giving any warning.
The Ombudsman is currently deciding a complaint from Steve Kenny, a retiree from a FTSE 100 company, who argues that increases should continue for both men and women. "The system was set up to give people who contracted out the same level of protection as those who stayed contracted in," he says.
"People are losing inflation protection on part of their occupational pension."
Meanwhile, Chris Thompson, a pensioner who used to work in the insurance sector whose case has been passed on from the PAC to the National Audit Office, is disturbed to hear the DWP say that it never took responsibility for paying GMP increases. The department told The Independent: "The DWP is not responsible for paying GMPs or GMP increases."
Mr Thompson says: "If the DWP say they never paid the increases, why have they been promising in their booklets for 27 years that they will pay these increases? If that is the case, then this is a pretty big case of maladministration if they won't pay them and honour the wording in their booklets."
It may be that some of the most generous public sector schemes will decide to keep paying GMP increases to women who feel they have lost out. They have a history of going the extra mile to take care of their future pensioners. But people in private schemes stand less of a chance. "Women could find out whether there was any possibility of getting the increases paid to them at the discretion of the schemes," says Malcolm McLean of actuary Barnett Waddingham, the former chief executive of the Pensions Advisory Service, speaking of both public and private sector schemes. But he adds: "The schemes could say, though, that is it not required to give the increases."
Citizens Advice: adviceguide.org.uk/wales/debt_w/debt_pensions_e.htm
Pensions Advisory Service: pensionsadvisoryservice.org.uk and 0300 123 1047
Case study: Losing out each month
Kay is one of the women who will lose increases on the GMP part of her pension because of the changes coming into effect in April next year. Her company pension – which she built up with a FTSE 100 business – provides her with about £583 a month. If she still got the GMP rises, she would be getting an average of £11 more a month. "That amount can make a lot of difference to someone on a small income," she says.
She finds it "frustrating" that women will lose out more than men – and that some of them will end up poorer without knowing why. "Who'd have thought that changes to the state pension scheme can affect people's occupational pensions?" She does not think she will have enough money to retire.
But, if there is a silver lining, it is that Kay and her husband both had to learn new skills when they were made redundant in their 40s, and now run a small web design company. Kay says: "I love it. Someone comes to you as a start-up and three months later they have a website and are getting business from it."Reuse content