What is the gender pensions gap – and how might it affect you?
The ‘gender pay gap’ – referring to the discrepancy between the pay packets of women and men in the workplace – gets ample coverage in major media and press.
But its lesser known (and equally as important) sister subject remains disproportionately obscure. Despite its obscurity, it is an incredibly concerning and worrying issue.
A significant inconsistency between the amount that males and females are saving for retirement, leading to substantially detrimental issues for women as they approach retirement age.
Reports suggest that women save on average £100,000 less in their pension pot compared with men – a staggering two thirds less.
In recent years the pensions system has witnessed considerable shake-ups, changing the way people both save for and spend their pension pots.
The conversation mostly centres on the increasing retirement age, impact of compulsory pensions upon small businesses and the continuing need to save adequately for the future. But gender inequality in the pensions industry is rarely discussed, despite the consequences becoming somewhat of a ‘ticking timebomb’ in nature.
Here we explain what the gender pension gap is, why you need to know about it and what can be done to resolve the issue.
"Reports suggest that women save on average £100,000 less in their pension pot compared with men – a staggering two thirds less. "
What is the gender pensions gap?
If you’re familiar with the gender pay gap, the gender pensions gap will be a recognisable concept to you.
It refers to the deficit between what men are saving for retirement and the amount put aside by their female counterparts. Indeed it is a concern inextricably linked to the gender pay gap, since lower incomes received by women naturally lead to reduced sums saved into pension funds.
The phenomenon has been known for some time, especially amongst financial advisors, analysts and commentators – but it’s been largely kept out of the glare of public scrutiny.
Recently however promotion of the issue has been gathering momentum as official figures released frame the stark reality of the situation in sharp focus.
This year the UK press are picking up on the issue of the gender pensions gap and running with it.
The aim is to make women and men aware of the discrepancy in the hope that there is time for many to remedy it – before it’s too late.
Why is the gender pensions gap an issue?
The current state of affairs in the pension industry puts women at a significant disadvantage to men in terms of the amount they save and consequently the quality and duration of their retirement. It means that women aren’t saving enough as men and therefore can’t afford to retire at the same time, or don’t have sufficient funds to live well in retirement.
To demonstrate the consequences of the gender pensions gap we have created a dummy scenario, using an average couple as an example.
Peter and Karen have both been working since they were 16. They have both been saving into company pension schemes since they were 21. Karen earns £10,000 less per year than Peter, and over her lifetime saves £45,000 less into her pension. She also takes a total of five years away from her career when the couple starts a family and a further three several years later to support her elderly mother.
When the two reach their respective retirement ages Peter has £220,000 in his pension pot, and Karen has just £90,000 – £130,000 less. This means that Karen may not be able to afford to retire comfortably until she is 70, even though she can legally retire aged 65. Even then the size of her pension pot and payments will be considerably less than Peter’s.
This example is reflective of the current state of affairs for women and men in their sixties today. Average figures show that women in their 60s have an average of £51,000 in their private pension compared with the £156,000 for men, according to the Pensions Policy Institute.
For the individual it’s clear to see why the deficit could be devastating.
But there are wider consequences for the government as financial pressure continues to mount from an ageing population. Resources are already pressed due to people living longer, a strained NHS and population growth.
"Part-time work or taking time away from work is estimated to contribute to around 50% of the deficit, researchers estimate"
How has the pensions gap between men and women occurred?
The reasons behind the gender pensions gap are complex and numerous.
Women struggle to save as much as men for a number of reasons – including, but not limited, to:
Women earn less than men
At the moment women earn around 9% less on average than their male counterparts – which translates to £3,000 less per year based on a £30,000 salary. Savings are naturally the first to take the hit, since salaries are spent on the essentials and current living expenses in the first instance.
Women take time out of work
Women take more time than men away from their career to raise and care for children, and to look after elderly relatives. This understandably affects the amount they earn over their lifetimes in comparison to men.
Part-time work or taking time away from work is estimated to contribute to around 50% of the deficit, researchers estimate.
One key issue is that women are often forced to take time out of their career after starting a family, even when they don’t want to. This is due to the inaccessibly high cost of childcare and poor availability. The gender pension deficit is also known as ‘the motherhood penalty’ in some circles for this reason.
In a recent survey by the People’s Pension over 50% of women reduced their working hours after having children – more than a third left work altogether.
Women tend to lack valuable knowledge regarding pension and investment schemes
A recent initiative in the states headed up by Sallie Crawcheck aims to get more women into the investments market. Her argument, backed by extensive research, is that men are savvier when it comes to saving and therefore are better off financially.
They are more likely to understand and invest in the stock market, making their savings go further. The barrier to women is simply a matter of access and knowledge. Men are naturally introduced to finances at a younger age and are expected to know what to do to manage them.
Natural aversion to risk
This is a much-debated factor but has its roots in various studies and ideologies. It is thought that men are naturally more prone to (and comfortable with) taking risks than women, especially when it comes to money.
This translates to a disadvantage for women when it comes to saving, as naturally higher-risk pension plans and savings schemes tend to hold the prospect of higher returns.
Women may also be more likely to spend their money on everyday essentials rather than ‘over saving’ for a pension.
Who is affected by the gender pensions gap?
Women of all ages could potentially be affected by the gender pensions gap, but it is especially concerning for those approaching retirement age. This is because they have less time to try and address the deficit.
It is hoped that future generations should be able to address the imbalance, ensuring fairer pensions for all.
Somewhat ironically women have achieved equality in one area – although it puts them at a further detriment. Their retirement age was recently adjusted to make it the same for both men and women. On top of this the retirement age for women is expected to rise to 66 in 2020, and to 67 in 2028.
This means that women won’t be eligible for a state pension until much later, meaning private pension provision is all the more important.
How can we solve the issue of the gender pensions gap?
Recent figures from the DWP revealed that there are now equal numbers of men and women contributing to a pension, which is positive, but it’s not enough.
Some remedial action needs to be taken to help women to save sufficient amounts to match their male counterparts. The solution would be complex and different parties disagree on what would be the best course of action to take. Possible solutions to the crisis include:
1- Higher contributions
Removing the lower earnings limit means that contributions will be paid on every pound of earnings. Contributions from the very first pound could result in an increase of wealth at retirement of a massive 140%.
2 – Childcare availability and affordability
When childcare is more easily accessible and costs less women who want to return to work can do so, meaning they can contribute to their pensions.
3 – Family carer/maternity top-ups
Introducing a scheme whereby a portion of income can still be set aside into a pension fund will help women who choose to take time away from work to continue to save.
4- Removal of lower-band earnings limit
At the moment there is a £10,000 threshold which acts as a trigger for auto enrolment. Removing this will get more women into the auto enrolment schemes who are currently ineligible due to part-time work or low salary.
5- Flat-rate tax relief increase
Increasing the current rate of 20% by 10% would better support those on a low income.
6 – Better provision for pensions in divorce settlements
When pension funds are always considered in divorce settlements women will be better off.
What can I do to help myself combat the deficit?
Unfortunately there’s little women can do on an individual level to help the gender pension deficit situation.
Until things change on a higher level women are essentially victims of a system that simply doesn’t work well for them and actively puts them at a disadvantage. There are however some things men and women alike can do.
1 – Stay informed
The most important thing to do firstly is to stay informed on the issue as much as you possibly can.
Read articles from trusted sources such as the gov.uk website, the Pensions Policy Institute and DWP.
Press articles can be helpful and informative but misleading, so take care when you search to check it’s a reputable source.
2 – Save as much as possible
The importance of women saving for a pension when they can cannot be overstated. Educating yourself and others about the different options and schemes available.
If you are ineligible for auto enrolment look into savings accounts that give you a little extra for your money.
They won’t be comparable to a pension but they give you a little more bang for your buck. If you save a little each month it’ll go some way to making up for the deficit.
3 – Make alternative arrangements for time away from work
Maternity leave and time away from a woman’s career to support family members significantly impacts upon her pension contributions. As above, finding a way to maintain pension contributions during a time that you wouldn’t normally be able
Although the government’s Lifetime ISA scheme ended in 2019 there are some other options in the pipeline to help savers’ money go further, especially if it can be locked away for long periods of time.
4 – Talk it out
Couples should be aware of the deficit and make time to discuss their options and how they can plan ahead together. Women can also read up on how divorce can affect their pension pot and retirement plans and consider making arrangements ‘just in case’.
Where can I learn more?
To find out more about the gender pensions gap you can head to the Pensions Policy Institute, FCA or gov.uk website. If you currently have a pension and are concerned about how this could affect you, consider speaking directly to your pension provider.