My previous report on incomes in retirement (Hutton 1996) was written in June 1996. Almost a year later, the UK election in May 1997 led to a change in government and, in the following November, to a review of pension provision. The results of this review will be announced in a Green Paper due in the Autumn 1998. Prior to the election the political parties made statements and election pledges on pensions, so that it has been a time of some clarity of position but also, until the results of the review are published, of considerable uncertainty. The areas for debate, however, have been well set out.

Two years ago I concluded:

It will be interesting…to see what progress or otherwise has occurred in ensuring an adequate income in retirement, more equal provision for men and women, in the movement towards funded pensions, in the role of the state pension, and in the progress of the minimum pension guarantee. (Hutton 1996: 785)

In this report I will first discuss where the debate on these issues has gone. Policy developments will then be set out, and finally I will identify questions to be asked in evaluating the pensions' review when it is published.

Income in retirement does not normally feature in national headlines, but scandals such as the misuse of the company pension fund by Robert Maxwell, and the financial advice given to join personal pension schemes have done just that. The ‘demographic time bomb’ has become a media cliché. In this first of two reviews of the incomes and financial circumstances of older people we examine the influence of these headlines and clichés on present and future incomes. To set the scene, the current levels and sources of income for older people are outlined and compared with those of the younger population. The following section describes the trends and changes in pensioners’ incomes and what has influenced these trends. The next sets out the main issues in providing a secure income in old age, and finally the current policy debate is reviewed and some questions are identified for re-examination in two years’ time.

The article highlights the discordance between the reality and the perception of women's independence and equality. The changes in legislation and increased female participation in the labour market since the 1960s give the impression of considerable progress. Equal treatment of men and women has been proposed. Evidence from national survey data however, shows that women's income is still lower than men's with no matching increase with age and career. Social security policy has always been based on labour market participation but women's labour market participation is quite different from that of men. Because of childcare responsibilities many women work parttime at some time in their working lives. Equal pay legislation has had little influence on the incomes from part-time work. The failure of real income from part-time work to rise over time has been a major cause along with job segregation and the segmentation of the labour market in maintaining the difference between men's and women's incomes. Women's continued lack of personal income has consequences for the support for women and children, particularly evident in the case of lone mothers. The incomes available to a woman are unlikely to be high enough to provide an adequate independent living standard for herself and any dependent children.

The study reported on in this paper used existing data to create a broad measure of living standards as advocated by Townsend (1979) in developing his concept of relative deprivation. Linked data from the General Household Survey and the Family Expenditure Survey was used to compare the living standards of households at different income levels. A particular focus of the study was the living standards of households on supplementary benefit (as it was at the time of the surveys). Analyses showed that in general they score less well on individual indicators of living standards than other households of the same type on low incomes. A summary index was developed which indicated the similarity of standards of living for households on supplementary benefit (SB) irrespective of household type. The specific indices constructed for each of the family types investigated suggested that families on SB with children have a relatively lower standard of living than other families with children whereas elderly households on supplementary benefit are not so deprived in comparison with other elderly households.

Legislation in 1985 and 1986 has attempted to give new impetus to the growth of occupational and personal pension schemes. This article demonstrates that, because of the interaction between occupational pensions and means-tested social security provision, many of today's pensioners receive little or no financial benefit from their occupational pension. The evidence presented is consistent with the thesis that the pensioners who are worst affected by the ‘pension trap’ include those who, as workers, were low-paid and experienced interrupted employment. As a consequence they reached retirement with small state and occupational pensions, limited savings and no house which they owned. Many are women. The penetration of occupational and personal pensions is currently lowest among the same groups of workers and it could be that the Government's policy to extend the coverage of private pensions will result in an increase in the severity of the pension trap. Some measures for reducing the impact of the pension trap are discussed.