Policy Papers


The ‘scandal’ of women’s pensions in Britain: how did it come about?

Pat Thane |

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Executive Summary

  • 13% of women qualify for the full basic state pensions compared with 92% of men. Women receive much lower occupational pensions than men, or none.
  • Consequently many more women than men are very poor in old age.
  • This is because women earn less than men, are less often in pensionable work, have work-histories interrupted by caring responsibilities, and live longer than men.
  • This is not a new situation. It is not, as we are often told, just a product of recent social change, such as the rise in divorce rendering the post-war settlement obsolete
  • It was the situation 100 years ago. It was well-known then and was the major reason why the first British state pensions were non-contributory rather than following the German social insurance model. But the British pensions were too low to solve the problem.
  • When Beveridge wrote his 1942 Report he recognized the problems of women, including those caused by divorce and separation, and he proposed solutions which could have diminished gender inequalities in pensions.
  • The fact that Beveridge's proposals were ignored, that pensions were paid at lower rates than he had proposed and that the fundamental problems he identified have never been resolved, has led to British pensions rates being lower than those of any other developed country. This has perpetuated the 'scandal' of women's pensions.
  • The only solution is a universal, basic state pension which provides enough to live on.
  • This is affordable.

The problem

Alan Johnson, secretary of state for work and pensions until the 2005 election, commented shortly before leaving the office on the need for 'radical reform to tackle the scandal of women's pensions'. He was referring to the fact that, in 2005, just 13% of women pensioners were entitled to the full basic state pension (itself insufficient to live on without a supplement) compared with 92% of men. The first report of the Pensions Commission, chaired by Adair Turner, pointed out :

Current female pensioners receive much lower levels of occupational pension because during working life they had much lower levels of employment, a greater tendency to be in part-time work, lower average earnings, and a greater tendency to work in service sectors where pension provision was less prevalent.

The two main 'pillars' of the British pension system in the twentieth century were state and occupational pensions. Both have failed most older women.

Younger women now spend longer periods in paid work than earlier age cohorts and average female earnings have risen, but a gender gap in work opportunities and pay, and in capacity to save, remains. A large disparity in pension entitlement between men and women is likely to continue for the foreseeable future if present pension arrangements continue.

None of this should be news. The obstacles to women building an adequate pension have been known ever since state pensions were first proposed in Britain over a century ago. The challenges were the same then as now: women did, and do, outlive men; women were/are likely to be poorer than men in old age because they had/have, less opportunities to save due to more restricted job opportunities, lower pay and interrupted careers due to caring responsibilities. They were/are more, likely than men to experience poverty due to the ending of a partnership. A hundred years ago this was caused by widowhood, now the chief cause is separation or divorce, but the proportion affected and the material effects were/are similar.

The financial problems of older women are not simply a product of unprecedented recent demographic and social change such as the increased divorce rate, as we are often told. They have been evident for a very long time, but have never been as seriously tackled by policy-makers as the pension needs of men.

The first British pensions

The relative poverty of older women was the major reason why the first British state pensions, introduced in 1908, took a different form from the pioneering German scheme introduced in the 1880s. The German pensions were contributory and income related, components of the first ever national insurance scheme. The German model was subsequently adopted by a number of European countries. A similar scheme was strongly advocated for Britain at the time, but was rejected because the two schemes had very different objectives: the German system aimed to provide income replacement for contributors when they became physically unable to work, at whatever age; the British to replace the ancient Poor Law as the means of providing out of the tax system for very poor, but respectable, old people. From the beginning, the German system provided mainly for men, the British mainly for women.

The first state pension proposal to be taken seriously by the British state, in the 1870s, advocated compulsory saving into a state-guaranteed pension fund by all young people between entry to paid work and marriage. Thereafter, it was recognized, saving became difficult for most working-class men and impossible for most women. After investigation, it became obvious that most young people, especially women, did not earn enough to fund a pension since many of them helped support their families with their earnings and had no surplus for saving. For the same reason very few women, and the poorly and irregularly paid, less skilled half of the male working class were not members of Friendly Societies, the voluntary associations which provided sickness benefit and often pensions in return for members' contributions.

After a succession of official enquiries, the British government concluded that the clinching argument against a German-style social insurance pension was that the majority of the neediest older people were women, and very few women could afford to pay adequate, regular insurance contributions. No way could be found to include them in an insurance scheme. Hence the first British state pensions were non-contributory. They were fixed at less than the estimated weekly cost of subsistence, to encourage saving and family support to supplement the pension, and were subject to stringent means and character tests, to exclude those who squandered their resources. The principles of the Poor Law lived on in the new pension system. The pension age was fixed at 70. This was widely known to be too late for most poor older people who became unfit for regular work in their early sixties or before. The age of 70 was chosen by the Treasury as a cost-cutting measure: by that age many people were dead. Two-thirds of the first state pensioners were female.

Between the wars

In 1925 the state pension was supplemented by the extension of the National Health Insurance scheme (established 1911) to provide pensions between ages 65 and 70 for contributors, mainly male manual workers (higher-paid, white-collar workers were excluded). Employed single women could contribute, but paid lower contributions and received lower benefits on the, often incorrect, assumption that they had fewer responsibilities. Many such women supported siblings or older relatives. The insurance pension was flat-rate and fixed at the same, low level as the non-contributory pension.

Also in 1925 the problem of poverty due to the ending of partnerships and single motherhood was acknowledged with the introduction of state widows' and orphans' pensions. The widows' pension was paid to all widows of insured men with children under age 14 at the time of the husband's death. It was set at the same low level as the old-age pension and was payable for life. Protest followed that this was unfair to women widowed at older ages who might have been out of the labour market for many years caring for husband and children and would find it difficult to support themselves, especially amid the high unemployment of the 1920s. In 1929 entitlement was extended to all widows of insured men from the age of 55. This assisted a substantial group of poor older women.

Occupational pensions expanded in Britain between the wars, but they disproportionately benefited men. Women were compelled to give up on marriage most forms of employment in which occupational pensions were available- i.e. white-collar jobs in the public sector, banks etc - and were obliged to exchange their pension entitlements for lump-sum marriage gratuities. But even after marriage most women could not rely upon lifetime support from a male breadwinner. Women tended to outlive men. Even the minority married to men with occupational pensions ( many of which were small) could not expect to inherit that pension. Some might receive back their husband's (but not the employer's) contributions in a lump sum on his death. A fortunate few might be paid their husband's full pension for five years after his death. Since women could expect to live 3-4 years longer than men while they married men on average 4-5 years older than themselves, these arrangements did not guarantee security until death.

Women who did not marry did not fare better. Marriage rates at any time up to World War Two were lower than later in the century: in 1931 only about three-quarters of women aged 35-44 had ever married. Unmarried women generally had more restricted job opportunities, lower pay and less opportunities for saving than men, even when they had equivalent qualifications. They were less likely to be in pensionable employment. Many were carers for ageing relatives.

To highlight these problems, in 1935 the National Spinsters' Pensions Association was formed to demand state pensions for unmarried women at 55. They argued that, in addition to their other disadvantages, women were often forced into involuntary retirement at earlier ages than men, for various reasons: women's poorer health; discrimination by employers against post-menopausal women; and the fact that many unmarried women gave up work in middle life to care for ageing parents and could not, thereafter, find employment.

A government enquiry found substance in these arguments: rates of unemployment among 'spinsters' over 45 were higher than among men of the same age, and they found it harder to re-enter employment; women showed a marked deterioration in health from age 55. The committee expressed concern about the numbers of women left in poverty after caring for elderly relatives. In 1940 the state pensionable age for all women was reduced to 60. But the level of pension remained very low. Government surveys during World War Two found appalling levels of poverty among pensioners, most of them female, even after the introduction, also in 1940, of Supplementary Assistance, a means-tested boost to the already means-tested pension. One-third of all pensioners immediately qualified for this, again mostly female.

Beveridge and women's pensions

This was the situation Beveridge surveyed when he produced his Report on Social Insurance in 1942. He recommended that state pensions should become universal and national insurance based, flat-rate and minimal, just 'guaranteeing the minimum income needed for subsistence'. For higher than subsistence incomes in retirement- to live in 'comfort'- people should save, ideally through non-profit, mutual institutions such as Friendly Societies. The long legacy of the Poor Law lived on.

Beveridge clearly identified the difficulties of fitting women into an insurance system and the main issues they faced in seeking to provide for old age. Initially he proposed that the needs of women should be provided for in six different ways:

  1. Employed single women would contribute like men for comprehensive insurance.
  2. Married women would be entitled to a 'housewives policy', based on their husbands' contributions. This would entitle them to a 'marriage grant' for setting up home, maternity benefits, dependents' benefits when their husbands were sick, disabled or unemployed, funeral benefit, widowhood and separation allowances, domestic help during sickness and pensions in old age.
  3. Employed married women could choose to rely on their housewives' policy or contribute separately as employed persons, but in the latter case receiving lower benefits than men, on the assumption that their housing was provided by their husbands.
  4. Widows would continue to draw pensions while they had dependent children, but thereafter 'every widow of working age and capacity' would be entitled to apply for 'training benefit' after which she would be expected to work and to contribute to the fund. As the final report put it: 'There is no reason why a childless widow should get a pension for life; if she is able to work she should work. On the other hand provision much better than at present should be made for those who, because they have the care of children, cannot work for gain or cannot work regularly'.
  5. 'Unmarried wives'- i.e., cohabitees- would be entitled to the housewives' policy, with the exception of the marriage grant and the widows' pension.
  6. 'Domestic spinsters' caring for elderly relatives, would be classed as unoccupied persons and would contribute only to receive an old age pension. Those who could not afford contributions ( which required an income of at least £75 pa) would have no recourse but means-tested public assistance.

Had they been implemented , these proposals would have established a framework with a greater capacity for flexible adaptation to social change later in the century than that established by the Attlee government after the war, in particular the increase in divorce and unmarried partnership. But it left untouched other problems such as that of the poorer single carer.

The proposals faced criticism, especially from women's organizations for not treating all women equally with men. Beveridge, despite his real sympathy with women's needs, was devoted to the principle of National Insurance and could find no way to fit into it women who did not have equivalent work histories with men. He justified his recommendations for married women on the grounds that the work of the housewife in the home was as important socially and economically as waged work and merited equal recognition in the social security system. As he put it in his Report: 'The great majority' of married women must be regarded as occupied on work which is vital though unpaid, without which their husbands could not do their paid work and without which the nation could not continue...The position of housewives is recognized in form and in substance...by treating them not as dependants of their husbands, but as partners sharing benefit and pension when there are no earnings to share'. Hence it was reasonable that the husband's contribution should cover benefits for his wife.

Behind this approach lay not only Beveridge's concern about the relative poverty of older women, which had been clear in his writings since the beginning of the century, but also the desire to reverse the pre-war decline in the birth-rate and the consequent growth in the proportion of older people in the population. He believed that one important reason why housewives should be supported by the social security system was that 'in the next thirty years housewives as mothers have vital work to do in ensuring the adequate continuance of the British race and of British ideals in the world'.

Beveridge's proposals for benefits for deserted wives and 'unmarried wives' foundered partly on the objections of critics who feared that they would undermine the family, and partly on perceived practical problems concerning the treatment of 'guilty' wives who initiated the break-up of a marriage. Also important was the concern of the Labour government to keep welfare spending low in order to maximize investment in industry. They were therefore dropped.

Pensions and social change after World War Two

The greatest problem created by the pension system introduced by the Labour government in 1948 was the very low level of pension payments, lower even than Beveridge envisaged. Even when the new pension was introduced in 1948, 638,000 (mainly female) people over age 60 had to supplement it with the means-tested National Assistance, also introduced in 1948. The number rose to almost 1 million in 1951. Surveys in the 1950s showed the continuing extent of poverty among older women.

Substantial numbers ( again, mostly female) have continued ever since to depend on the means-tested supplement, which has gone through a number of changes of name and detail since 1948. In late 2005 1.3 million out of 1.9 million recipients of the means-tested Pension Credit were female. Equally consistent, and a still greater cause of concern, have been the large numbers of pensioners who have qualified for the supplement but failed to apply: still 20% of eligible pensioners in 2005, under the most humane form of administration so far devised.

Beveridge's expectations about the post-war roles of women appeared to be born out. After the war, marriage rates rose and marriage became almost universal. The numbers of never-married woman fell sharply. Mean age at first marriage also fell to historically-low levels, from 25.3 before the war to 22.6 in 1971. This reduced the time available to most women to establish themselves in careers and accumulate pensions savings between completing education and entering marriage and childbirth, the more so because the compulsory school leaving age rose from 14 to 15 in 1947, and to 16 in 1972, and increasing numbers of young women stayed in education past the compulsory leaving age. The birth rate also rose and births tended to be concentrated early in marriage. Social disapproval, poor availability of childcare, full employment for men and generally rising living standards ensured that mothers of young children were rarely in the paid labour market and almost never in full-time work.

These young women who married and had their children in the 1950s and 60s, who did not build up pensions in their own right and who all too often experienced divorce in the 1970s and after, are now in or approaching pension age. They account for a great deal of current poverty among older women and will do so for some time, since they can expect to live into their eighties, at least.

In what is now seen as a 'golden age' of full employment between the end of World War 2 and the 'oil shock' of the early 1970s the long, stable marriage also experienced an historically-unusual golden age: life expectancy rose and the numbers of relatively young widows fell, while divorce was difficult to obtain and relatively rare.

Though mothers of young children were likely to stay at home, older women were increasingly in the workforce, indeed were encouraged out to work by the Attlee government, which was concerned about the labour shortage. The 'marriage bar' disappeared, though more slowly in some occupations than others. For the first time it became socially acceptable and possible for middle-class wives to re-enter paid employment once their children were grown. However it remained difficult, even for the best-qualified of them, to re-enter full-time or pensionable employment.

Since the 1950s increasing numbers of married women have been in paid work for increasing lengths of time, though an exceptionally high proportion of the British female workforce continues to be in part-time work which is not, or is inadequately, pensioned.

Occupational pensions and women

Not until the 1980s did significant numbers of women enter work which could potentially provide an adequate occupational pension or sufficient income to save for an adequate private pension.

In the immediate post-war period some occupational pension schemes still did not admit women on the grounds that they were likely to leave on marriage. Those which did so, still often repaid the contributions as a 'dowry' on marriage. Some would only admit women at later ages than men, presumably once they were thought too old to marry -between ages 25 and 40 - whereas men were normally admitted at 21. This, of course, reduced the women's pension entitlement. Even in 1966 an official enquiry by industrialists and trade unionists decided that the preservation of women's occupational pensions on marriage was unnecessary.

Since women tend to outlive men, the provision for widows in occupational schemes is important for married women's security in later life. Very slowly pension annuities for widows were introduced into occupational schemes, typically providing one-third to one-half of the husband's (often low) pension. By 1971 only one-third of private-sector scheme members were eligible for this widows' annuity for death in service. For members who died after retirement, employers from the 1950s increasingly offered the opportunity for a male employee to take a lower pension in return for an enhanced pension for his widow: usually one-third to one-half of the pension paid during his lifetime. Few eligible members took up this option because most initial pensions were low and the trade-off unfavourable.

Provision for widows improved due to the requirements for occupational schemes wishing to contract out of the state earnings-related scheme (SERPS), introduced in 1978. Shortly thereafter the proportion of private-sector schemes providing widows' annuities on death in service rose to 89% and it became the norm for good employers to offer widows' pensions at about half the level of the men's pension. Half of a not necessarily high pension was not a lot and only a minority of wives benefited, but it was better than before.

A change which Beveridge could not have foreseen was the rapid rise in divorce, separation and unmarried parenting and partnership which followed the 1969 Divorce Act and accelerated during the 1980s. This ended the brief heyday of the long, stable marriage. Not until 2000 did women ( and men where appropriate) gain the right on divorce to receive a proportion of their former spouse's pension fund and to receive benefits independently ( though few such 'sharing orders' have been taken out by 2005). Heterosexual cohabitees have no such rights.

Conclusions

The current problems of poverty among older women are not new. The difficulties for women of providing for their old age have been known for over a century, have changed little and have never gone away, but they have been evaded by successive governments, not least because they are hard to solve without a lot of public expense. Women, like men, are rightly urged to save all that they can, but there is no evidence that large numbers of the older women at present in poverty are suffering the just reward of improvidence. Our pension system has been characterized by a state pension too low to live on and dependence on occupational and private pensions which cannot provide a comfortable old age to the low-paid and irregularly employed, most of whom are female. It is hard to believe that this miserable situation would have lasted for so long if the victims had been men.

It is also hard to believe that there is any solution to this 'scandal' other than an adequate, universal, basic state pension for all citizens. The net cost by 2030 of a pension at the 2005 threshold for means testing ( £105 per week or 22% of national average earnings) is estimated at around £3 billion. This is less than one-third of the £10 billion savings which will result from the raising of women's state pension age from 60 to 65 between 2010 and 2020, which was agreed some time ago. Furthermore, the National Insurance Fund has a growing surplus, due to paying price-linked benefits while collecting earnings-linked contributions. By March 2006 the surplus is projected to be £34.6bn, of which £25bn can be treated as usable surplus, above the reserve which must be kept for prudential reasons. If current policies continue, the surplus in the fund will be about £60bn by 2009. This is a convenient extra source of revenue for the Treasury, but it could fund better pensions. Income to the NI fund could be further increased by raising or abolishing the Upper Earnings Limit on contributions to the State Second Pension. There would also be savings on the considerable cost of administering means-tested schemes. Also, as the Turner Commission's Second Report suggests, and as the Minister for Work and Pensions has proposed (7 February, 2006), a further source of finance in the longer term would result from a gradual raising of the pension age. A decent basic state pension for all is affordable.


Further Reading


Hannah, Leslie, Inventing Retirement:The Development of Occupational Pensions in Britain ( Cambridge: Cambridge University Press, 1986).

Harris, Jose, William Beveridge. A Biography ( Oxford: Oxford University Press, second edition 1997).

Johnson, Paul, Saving and Spending. The Working-Class Economy in Britain, 1870-1939 (Oxford: Oxford University Press, 1985).

Pensions Commission, Pensions: Challenges and Choices. The First Report of the Pensions Commission ; A New Pension Settlement for the Twenty-First Century. The Second Report of the Pensions Commission. ( London: The Stationery Office, 2005, 2005).

Report of the Committee on Pensions for Unmarried Women, (Cmd. 5991, 1939).

Social Insurance and Allied Services, (Cmd. 6404, 1942).

Sadler, P, The Ageing Population, Pensions and Wealth Creation ( London: Tomorrow's Company, 2005).

Thane, Pat 'The debate on the declining birth-rate in Britain: the 'menace' of an ageing population, 1920s-1950s', Continuity and Change, 5, (2), 1990.

Thane, Pat Old Age in English History. Past Experiences , Present Issues. (Oxford, Oxford University Press, 2000).

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