Women will suffer after pension rules changed today

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Older woman selling flowersAndreas Gebert

The government's tactic of continually shifting the goalposts on pensions until no-body cares any more continues apace. It has excluded yet another chunk of people from the new auto-enrolment pension rules, which means a shocking 1 million have been locked out of the scheme since it was first announced.

And it's women in particular who are set to suffer.


The changes

The idea of auto-enrolment was that it would bring an end to pensions exclusion. The vast majority of people in work would be automatically enrolled into a pension scheme by their employer when they started a job, and money would automatically be paid into the scheme by the employee, the employer and the government.

However, since details of the scheme were announced back in 2007, the goalposts have shifted so dramatically that an astonishing 1 million people have been excluded.

The changes in question are to the earnings threshold - or the amount of money that you have to earn before you are brought into the scheme. At launch this was £5,035. However, since then it has been gradually increased, and today it was raised again to £9,440.

Tax

The idea is that you don't qualify for a pension until you earn enough to start paying tax - so the rising personal taxation limit has pushed up the pensions threshold.

The government has argued that it has to have some form of minimum requirement, because if employers were forced to make contributions, for all jobholders, from pound one this is estimated to add around £130 million to their costs next year. It says this would be too much of a burden on employers.

Workers earning between £5,668 and £9,440 can choose to opt in, but the experts say that most won't.

However, the tax relief is just one benefit of this pension. Even if you don't pay tax, you get a contribution from your employer. And those who don't join a scheme will miss out. Between 75% and 80% of those set to suffer are women.

Women

Tom McPhail, Head of Pensions Research at Hargreaves Lansdown, says "Unfortunately it will mean that hundreds of thousands more workers will miss out on the opportunity to build a good retirement pot and because most of them are women it will exacerbate inequalities in the pension system."

Women are already less likely to have a pension than men, and when they do have something set aside for the future, they tend to have less than men - often because they took time out to bring up a family. Given that they then spend longer in retirement, it means that women are far more likely to suffer financial hardship in old age than men.

According to Prudential, only 31% of women planning to retire this year believe that they will have enough income to be able to retire in comfort - a problem exacerbated by a legacy of rigid Basic State Pension accrual rules and a history of under-saving among older women, who often find themselves reliant on their husbands' pensions.

According to LV= this means that more women will have to work in retirement to make ends meet. Some 4.1m women over 50 expect to retire later than the state pension age, compared to 2.4m men. However, this doesn't address the question of what happens when age or infirmity stops them from working.

Deirdre Flood, Prudential's retirement expert, said: "The closure of the pensions gender gap is happening much too slowly and older women continue to be more vulnerable. It's important that women take control of their finances and take steps to improve their potential retirement pot."

The fact that so many have been excluded by government tinkering, therefore, is clearly a huge step backwards. But what do you think? Are the changes fair? Should there be a minimum earnings threshold at all? Let us know in the comments.

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