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Labour’s £15,380 pension promise to women

Ed Monk

Ed Monk - Fidelity Personal Investing

Pensions have become a key battleground in the election campaign following the Labour manifesto promise to compensate women who have lost out as a result of changes to the state pension age.

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The promise has proved controversial because the policy would be eye-wateringly expensive, costing £58bn that Labour says it would borrow, meaning that future taxpayers would ultimately foot the bill.  

The size of the bill also demonstrates, of course, the size of the financial hit to the women affected. 

As an indication of the sums involved, Labour says it would pay women born between 6 April 1950 and 5 April 1955 £100 for each week of state pension entitlement they have lost. Those born between 6 April 1955 and 6 April 1960 would receive smaller amounts.

The maximum compensation would be £31,300, with an average payment of £15,380. Not small sums.

At the root of the dispute are increases in the state pension age of women from 60 to 65 which equalised the age for men and women. Some women were also affected by a general rise in the state pension age for men and women to 66. 

These changes have taken decades to be enacted and have been driven by the realisation that, without reform, the state pension will become unsustainably expensive. We are all living for longer, which means the state pension has to be paid for longer, but there’s also a rising number of people hitting state pension age - another impact of the outsized ‘baby boomer’ generation. 

That’s not to say these 1950s-born women do not still have a strong case for some compensation. Their argument is based on a lack of warning about the changes, which meant they could not prepare, rather than an objection to the need to raise the state pension age. 

That’s important, because the trend of longer living is not going away and the widespread consensus is that the state pension age has to rise to cope. This point was made again in work by the Office for National Statistics published last week. It looked at statistics on the average age at which someone would have 15 years of life remaining.

It explained that, in 2017, the average man with 15 years of life left would have been 70 years old. Back in 1997, however, the equivalent age was 65. In other words, the average 70-year-old today enjoys the same health, life expectancy and ability to work as someone aged 65 from 20 years ago.

Facts like these explain why there will always be pressure to cut costs from the system, which is why the role the State Pension performs is likely to change in the future. It will still form the bulk of retirement income for many people, of course, but there will also be many people who will want to stop work several years before their State Pension becomes due - with private savings plugging the gap. 

This is a significant challenge but there’s plenty you can do, whatever your age or level of saving, to maximise your pension saving in preparation.

If you’re contributing to a workplace pension, make sure that you are maximising any help that your employer offers. Many companies will match what you are paying, up to a certain level, so make the most of it.

Beyond that, try to increase your contributions if you can. A Fidelity tool can help you see what a big difference paying in just a small amount extra can make.

For example, a 30-year-old today earning £30,000 could contribute an extra 1% of their salary and then retire at age 68 with an extra £58,273 in their retirement fund. This example assumes that wages will grow by 3.75% and that the return on invested contributions is 5% after fees, which is not guaranteed.

Get some help

There’s plenty of places to get help answering these questions. The Government offers a free and impartial guidance service to help you understand your options at retirement. This is available via the web, telephone or face-to-face through government approved organisations, such as The Pensions Advisory Service and the Citizens Advice Bureau. You can find out more by going to pensionwise.gov.uk or by calling Pension Wise on 0800 138 3944.

More on pensions

Important Information

The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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