Emma Wall: Hello and welcome to the Morningstar Video 'Ask the Expert'. I'm Emma Wall and joining me today is Tom McPhail, Head of Retirement Policy for stockbroker Hargreaves Lansdown.
Hi Tom.
Tom McPhail: Hello Emma.
Wall: So we're here today to talk about women, women and pensions. It’s a hot topic in 2016, it would be hot topic all the time, if I had my way, but this year is particularly interesting because we've started the year with a bang. It’s being discussed in parliament; the state pension age for women and it's not gone exactly to plan, has it?
McPhail: It's extraordinary; they set this whole process in motion in 1995, 20 years ago. And they still managed to make a mess of it. Women state pension age is rising, it's been brought in line with men's state pension age. First taking it up to age 65 and then fairly rapidly moving everybody up to age 66 and then to 67. The problem is because they have done it in such a hurry we've had one piece of legislation laid on top of another. Women haven’t always been given sufficient notice of these changes, there are particularly a group of women born around 1953, 1954 have suddenly found with only a few years notice that their state pension age has been pushed back by up to 18 months.
A lot of women feel they have been hard done by, lot of women never received the notices from the government. They have now built up a very powerful head of steam, petition signed by over 100,000 people, debates in the House of Commons, debates in Westminster Hall, calling for the government to revisit these decisions and in some cases to compensate them for this failure to communicated everything adequately.
Wall: Because that’s the key issue isn’t it, I mean for women, and in fact anybody around this age group, their earning power is significantly diminished, in fact some have none at all. So to learn that you are not going to receive an income that you were quite literally banking on, for several years… It means that you could have no cash at all or indeed will be eating into savings that you were planning on using much later down the line.
McPhail: That’s right, the typical state pension is on average around £6,000 a year at the moment. So effectively some of these women have lost in some cases tens of thousands of pounds, even if it's only a year or two's delay that’s a significant sum of money, they may have been banking on. Suddenly they find they are not going to get it.
The government's in a bit of pickle on this, and there is a lot of pressure on them now to look again at the decision and perhaps to come up with some compensation arrangement for these women. It remains to be seen whether they are going to meet that demand or not.
Wall: If you think you are affected what should you do?
McPhail: First point of call is the Department for Work and Pensions there is lot of information there on their website and for anyone in their late 50s or early 60s there was very specific information you can obtain about your personal state pension entitlement, when you are going to get it, how much you are going to get.
But of course with anyone over the age of 55 now able to tap into that private pension savings, very important to first check what state pension you might be entitled to before you go and spend all that private money.
Wall: Let's wind it back a couple of decades then because that affects people who are nearing retirement, but of course there are other issues, for the other age groups. This year is the year that the smallest companies in Britain have to set up a pension plan for their employees, auto-enrollment for companies with less than 30 employees. These smaller companies are more likely to have employees who have lower wages and indeed part time workers. And if you draw a Venn Diagram of sort of part time workers, lower wages and women, it tends to be an almost black circle.
I think that one of the problems with auto-enrollment that has come to the fore as we enroll these smaller businesses, is that they are hard done by auto-enrollment they don’t actually get included in the pension scheme, because the threshold is £10,000 and some people, some women earn less than that.
McPhail: Some big challenges here. We've got hundreds of thousands of micro employers all having to meet their auto-enrollment duties this year. Most of them have never run a pension scheme in the past themselves. So it's new skills for them having to learn how to set up a pension, how to identify, who is eligible. How much they should be putting in. so there is a whole set of challenges right there and then for the employees some of them will not be eligible to be auto-enrolled because they are earning below this £10,000 threshold and it's per job. So if you have two jobs paying £7,000 each you don’t get auto-enrolled.
But the critical thing is you do have a right to join the pension, but you've got to stick your hand in the air and ask for it and if you do join the pension you may well be eligible for an employer contribution.
If your income is over about £5,800 you have a right to be put in, you have a right to ask for contribution from your employer. So whilst auto-enrolment is built on a principle of inertia that it gets done to you, that sort of breaks down at the level we are talking about now and it's really important that you find out what you are eligible for and that you claim that free money if you are entitled to it.
Wall: Tom, thank you very much.
McPhail: Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
