Millions of women have lost out on their state pension because of the state pension age rise. But they may also have lost out on their salary, by taking early retirement, maintenance in divorce and insurance payouts. Find out how it adds up.
Adding up the cost of the state pension age rise
Millions of women born in the 1950s have seen their state pension age rise by up to six years. The state pension age for both women and men is currently 65 and will go up to 66 in 2020. It’s not just state pension payments from the age of 60 that women have missed out on. Women born in the 1950s also lost out if they took early retirement, had divorce settlements based on a state pension age of 60 or had insurance policies that would only last until their 60th birthday. What could it all add up to?
Thousands of women took early retirement on the basis that their state pension would be paid from the age of 60. That means they lost out in several ways:
- Salary payments for the years between them stopping work and the date they would otherwise have retired at
- Their employer’s contributions into their workplace pension, if they were signed up to it
- The growth on their pension money.
The amount of money that 1950s women lost out on will vary from one woman to the next. If you look at an average wage of £27,000 a year, then over six years, that would add up to £162,000 in lost earnings alone. But that’s rather a simplistic approach.
Some women would have retired before state pension age anyway, many who work do so part time. But those who did take early retirement thinking they’d get their state pension soon will have suffered financially if they couldn’t find a job that paid a similar salary or wage. And that loss could be many tens of thousands of pounds.
Most divorces involve what’s called a ‘clean break’. It means that money, property and pensions are divided between the couple and there’s no arrangement for one person to pay the other ongoing payments. But with some divorces in England and Wales, especially in the past, the husband would be ordered to pay his ex wife maintenance.
The maintenance payments were for women who weren’t able to work, either because they were looking after the children or because they didn’t have the right skills to work. Maintenance payments ended when the ex wife reached retirement age. And that generally means state pension age. I know of many examples where courts said that maintenance payments must stop at 60, when the woman in question won’t get her state pension until she is 65 or 66.
I first wrote about this in 2013, but the family lawyer I spoke to at the time thought it was unlikely that courts would let women apply for an extension of their maintenance. You can read the article here .
Income protection policies
Income protection policies are designed to pay out if you’re too ill to work. They pay a percentage of your income and they can be invaluable if you have a long-term illness that means you cannot do your job.
The problem is that they’re generally only set up to last until women reach the age of 60. This continued even after plan to equalise the state pension age for women and men at 65 became law.
I’ve been aware of this issue for some time and have been discussing it with a life insurance/income protection expert who is trying to see if there’s a solution that will help women born in the 1950s (and later). I’ll update this article when I know more.
This is something that I hadn’t thought about until I saw a story about this last week. If you have a pension or an investment product, lifestyling is when your money is moved from ‘risky’ investments, such as shares, to less risky ones, such bonds and cash, as you approach retirement. The process normally starts at least ten years before you retire.
For women retiring at 60, lifestyling would start at 50 at the latest. But for women retiring at 65 or 66, the process may not start until they were 55 or 56. One newspaper did some calculations showing that women could be missing out on several thousand pounds of stock market growth, because their pension funds would have been move to less risky investments too early.
Of course, if the stock market had not risen by the amount it has over the last ten years, the amount women could be missing out on would be less. I think this case is harder to put a figure on than the divorce and maintenance, and income protection examples.
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