Women born in the 1950s must face the harsh reality that their state pension age is increasing, and despite a recent challenge in courts, there are no immediate plans to reverse the announced changes.
Financial advisers will need to help their female clients to face this reality, which will probably include more years in work, contributing more into a pension, and making sure the investments are working for their retirement goal.
Plans to increase the state pension age were first announced in the Pension Act 1995 but these changes were accelerated as part of the Pension Act 2011.
Campaign groups such as The Women Against State Pension Inequality and Backto60 have claimed these changes were implemented unfairly, with little or no personal notice.
The groups, which are calling for compensation for those affected, have also claimed that changes were implemented faster than promised with the 2011 Pension Act and left women with no time to make alternative plans, leading to devastating consequences.
For female baby boomers born in the 1950s, this meant an increase in the state pension age from 60 to 65 in November 2018.
Further gradual increases – for both men and women – are also planned for the next years, with the state pension age rising to 66 by 2020, to 67 between 2026 and 2028, and to 68 between 2044 and 2046.
According to Helen Morrissey, pensions specialist at Royal London, for women in this situation the ability to be able to work for longer, even on a part-time basis, will help them to bridge the gap to state pensions age.
She said: “Remaining in work also means many will be able to continue contributing to a pension - advisers should recommend that people contribute more than the auto-enrolment minimum wherever possible.
“This is especially the case if the employer offers a matching contribution where they match the employee’s contribution up to a certain level – for instance 6 per cent.”
Ms Morrissey also noted that ensuring the pension is appropriately invested is also important.
She said: “If the client is six years from retirement and does not want to purchase an annuity with their fund, for instance, then advisers can ensure the pension remains invested for growth.
“For those unable to keep working, then it is important that they check their benefit entitlements and plug any gaps in their national insurance contributions to ensure they can draw the maximum state pension.”
Hopes for a reverse in the government’s decision to increase the state pension age were quashed by the High Court in October, when Lord Justice Irwin and Justice Whipple dismissed claims of age discrimination, sex discrimination and lack of notice.
The judicial review, which took place in June, was brought by two claimants - Julie Delve, 61, and Karen Glynn, 62 – who argued that raising their pension age "unlawfully discriminated against them on the grounds of age, sex, and age and sex combined".
Gem Durham, independent financial adviser at Obsidian, argued that the “real difficulty for these women were that they were not given sufficient time to plan for these changes – and that is where the change in state pension age is unfair on them”.
She said: “The change itself had to happen, but they were not given insufficient warning. I am afraid for the majority of them the answer will be to remain working for longer.”
Tom Selby, senior analyst at AJ Bell, noted that while not everyone sympathises with the Waspi cause, it is important to acknowledge that “a significant number of women were genuinely caught cold by hikes in their state pension age and left in a dire financial position as a result”.
He said: “Some will have been lucky enough to be able to cover the financial black hole – in many cases tens of thousands of pounds – either from private savings, investments or both income sources, or from a spouse. Others will have needed to carry on working in order to bridge the gap.”
He argued that those women who took financial advice should have been made aware of the changes and been able to work through a plan to ensure they could still retire as planned.
Someone who needed to recover £40,000 of lost state pension income, for example, could have achieved this by saving an extra £3,000 a year, or just shy of £60 a week, over 10 years, he explained.
This assumes they enjoyed real investment growth of 5 per a year, so if growth was lower they would have needed to set aside more money.
Mr Selby noted that there is no magic solution for those caught out by a rising state pension age, and this situation just emphasises the importance of people taking responsibility and building their own retirement fund.
He said: “For those who have a private pension, they could draw on this at a faster rate while they wait for the state pension to kick in. For many, a combination of income sources will be used to plug the gap.
“However, investors need to be careful not to store up problems for later by withdrawing from their private pot at an unsustainable rate. This problem could be compounded if large income withdrawals are taken when markets are falling – so-called ‘pound-cost ravaging’.
“Others may choose to convert some of their private pension into a guaranteed income stream to replicate the state pension payment, although with annuity rates remaining persistently low this might not be the most attractive option.
“If someone decides to delay taking their private pension and work up until their new, higher state pension age, a review of investment strategy and asset allocation would be a sensible idea to make sure it remains appropriate.”