If we start with the gender pay gap, which is the difference between the average earnings of men and women in the UK, this will help us to better understand the gender pension gap. Recently, the Office for National Statistics (ONS)¹ released figures which confirms that the gender pay gap is reducing, albeit at a fairly slow rate.
What the gender pension gap isn’t about is equal pay. Fifty years ago, it became a legal requirement and a legal obligation of employers to give men and women equal pay for equal work.
Employers who identify a gender pay gap are more likely to have underrepresentation of women in higher paid jobs. This could typically be that a higher proportion of women than men are in more junior roles; this may be because, in some organisations, it’s easier to be part time in a less senior role.
Within the world of pensions, the equivalent concern is the gender pension gap: a gap between the average amount saved into a pension by women and men. This currently exceeds the gender pay gap by some margin. When the average life expectancy of women is almost 4 years longer than men, you could argue that women will need more in retirement to maintain good financial wellbeing, not less, and, therefore, more needs to be done, and quickly.
Once we understand that the gender pay gap is the difference in hourly rates of pay, it doesn’t come as a surprise that the pensions gap is bigger. The UK’s private pension system is greatly aligned to paid work. Women are more likely to work fewer paid - and therefore pensionable - hours than men, due to part-time work, career breaks, often to assume the main share of caring responsibilities.
Some would argue that it’s a simple problem to fix and that women could choose to work longer or pay more into their pension to make up for gaps in contributions created through gaps in their career. Whilst these are viable solutions, this simply addresses the symptoms rather than challenging the root cause. Unfortunately, the current system amplifies the issue.
One of the main challenges we face is raising awareness of this issue. I have spoken to several women in the pensions industry and include my own experience when I say that pension contributions were not at the forefront of my mind when deciding how to structure my career or bring up my children. People of all genders need to retain the choice to take time off work to prioritise caring responsibilities over an ‘income today or pension in later life’.
Employers can ensure that their staff have all the information they need to help them make informed decisions about their wider financial
wellbeing, including their pension, not just their take home pay, and the effect those decisions might have on their longer term retirement.
As well as educational support, there are several other steps that women can take to help close the gender pension gap:
- If you earn less than £10,000 speak to your employer about your options for joining your company pension scheme
- If you are already paying into a company pension scheme, increasing your payments to 12.5% of your salary would help both sexes achieve a living pension and help close the gap for women
- Check your National Insurance record to see if you’ll get the full State Pension amount when you retire: you need a total of 35 years of National Insurance contributions or, in some cases, you can apply for credits. If it looks like you won’t hit that, you might have the option of paying to fill in the gaps for the State Pension
- For those in a long-term relationship, have a stake in your finances. Should divorce ever come into the picture, keep pensions at the forefront of your mind when splitting assets.
Another area of consideration for an employer to implement is the adoption of salary sacrifice for pension contributions. This results in pension contributions being maintained at pre-maternity levels throughout paid maternity leave. It would replace the current situation in which employee contributions fall to £1.56 per week in an automatic enrolment minimum scheme.
However, the most effective way to close the gender pension gap could sit outside of the pension scheme. Opportunity for career progression, positive changes to parental leave benefits, along with career flexibility and more affordable childcare, all sit within the gift of employers and the government. This could help balance a rewarding career and caring for children by enabling caring responsibility to be equally shared.
When returning to work, employers could adopt a proactive family-friendly culture with policies in place to help support carers and stop them being disadvantaged. If we have learnt anything from the last year of remote working in a pandemic it is that adults can be trusted to work anywhere and this presents us with an opportunity to help encourage a more flexible work life balance for all working parents.
If we’re to make significant progress it’s clear the solutions don’t just lie in the hands of individuals, schemes, employers or the government alone - they sit with everyone.
This article was featured in Pensions Aspects magazine May 2021 edition.
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