CDC can only have a minor impact on pension gender inequality
CDC – a step to fairer gender pensions.
There are three ways for CDC to improve value for women’s money
- The attitude of employers, providers and government must change to put women on an equal footing to their male counterparts
- The service to women must take into account their needs, something that isn’t taught and needs to be learned – especially by men
- The product itself has to financially improve women’s retirement finances in terms of income, tax free cash and the spouse’s pensions received and left
Attitude to gender unfairness to women,
Andrew Young OBE explains that shortfalls in the fairness of attitude to women needs to be understood, “How differential will longevity be?”
Torsten Bell, our pensions minister says that we should be “perky” that much of the recent increase of pension take up through auto-enrolment is because more women are taking up pensionable work.
Women should be taken more seriously for a number of reasons, not least because they live longer but still get paid shorter and at lower rates.
Those I’m working with reckon that over the whole of life, women regularly have been treated as liabilities to be paid a lower pension than men. This is based on reports by Prospect and others. It is infact well known.
Righting discrimination?
For many in DC pensions, the conversion from accumulation to decumulation meant paying women lower pensions for the pound in their pot.
This was the case for “money purchase” of an annuity, until 2012, when the European Court of Justice deemed that taking customers’ gender into account contradicted laws on discrimination. Our attitude is that where possible the unfairness should be righted, this was an example of a wrong being righted by a change in the law.
The position is that “fairness” that underpins CDC needs to “right underlying unfairness”. It should help women where it can, using what the law can grant providers.
Service to women
The service that is given to women and men must be appropriate and meet women’s specific needs.
There is much that those who provide support to those accumulating pensions and those drawing pensions need. Sensitivity to the different needs of the genders is important. We are dealing with a range of requirements.
For younger people much of the need is to understand what stands between them and a proper pension. For those who are older, the questions are about how to draw pension against cash and how to ensure that partners are protected in the event of early death. The answers to questions may be different for women and men and we need to be sensitive to this. Service must listen and learn from experience and is something we will focus on to make our service better.
The product that we call a CDC pension scheme must be fair to women
We asked our chief actuary, Chris Bunford what he’d say to the question “is CDC providing some fairness to women?” He wrote
” Once you’ve bought some CDC pension your future salary/contributions don’t affect the level of that accrued pension. It will go up depending on scheme experience, but isn’t affected by any extra CDC pension you buy.
So, say you have two people aged exactly 30 who have accrued £1,000 pa of CDC pension with expected CPI increases. One leaves the scheme (either permanently or for a short while, like parental leave). They both retire at age 65. Their £1,000 pa of CDC pension will revalue to the same amount at age 65. The person who remained in service will continue paying contributions and will have bought more CDC pension since, so will end up with a higher pension from the scheme as you would expect. But both of their “pre-30” pensions will revalue to the same amount at age 65.
Because we haven’t got a “Final Salary” link the CDC scheme is not as skewed to those who get high salary increases throughout their lives. A gap in service just means a period of not earning new pension, it doesn’t affect accrued CDC pension.
And because we have age-related factors, we haven’t got older members being subsidised by younger members. Our unisex factors mean we do have females being marginally subsidised by males due to their higher expected longevity.”
We see our treatment of women within the rates we offer as influencing positively to women, their entitlements to pensions and to tax-free cash and we see the definition of dependents as critical to levelling women’s pensions up to mens
In conclusion
CDC cannot make retirement fair, but it can be fair itself and be a step to making pensions fairer for women.
