Topic: Gender Pensions Gap

The gender pensions income gap is more than double the gender pay gap: 40.3 per cent compared to 17.3 per cent¹.

The problem is many women don’t know about this until it hits them in retirement. No-one tells them².

Women tend to get a raw deal

We know through the work that we did in our report, The Gender Pensions Gap: Tackling The Motherhood Penalty, that there are four areas of real concern.

Firstly, many women take career breaks to have children. My colleague Jenna Gadhavi wrote recently about her own experiences of working part time, and the impact this has had on her ability to save. Childcare can be expensive³, and many mums can’t afford to go back to work.

Secondly, it is well known that, on average, women get paid less than men. That gender pay gap means lower pension contributions – and less income in retirement.

Third, too few women⁴ qualify to be in auto-enrolled company pensions, thanks to inflexible rules.  They may have a number of jobs that flexibly fit around their caring duties but if each pays less than £10,000, they will miss out of being automatically placed into their employers’ qualifying pension schemes.

Lastly, one of the benefits of a workplace pension pot is tax relief. But up to 1.75m⁵ people, most of them women, won’t get this because of the way their employer claims tax on net pay. This is a glitch in the pension rules and as such we’ve been calling on the government to fix this anomaly for many years.

All of this is made worse for women because savers in general tend to be unaware of how much they will need to last through retirement. Our research report, ‘New Choices, Big Decisions – 5 Years On’, found that people leave retirement planning until late – often too late.

Fixing the problems

We’ve recommended that the pension industry (and that includes us) do more to engage with women in their mid-40s and beyond who work part time. If we can all help women understand the long-term effect reduced pension contributions have on their available income in retirement, they will then have the knowledge to make their own informed decisions.

But better engagement is only part of it. The government must step up by supporting women who might want to return to jobs or work more hours once they have children. They can do this through bigger grants for local authorities to provide greater funding for good quality pre-school childcare. They can also abolish the net pay anomaly, to help those 1.75m low earners receive the much-needed tax relief to bolster their pensions savings.

And then there are other technical things to fix, like bringing more lower-paid workers into workplace pensions – three-quarters of them women – by cutting the yearly auto-enrolment earnings trigger to £6,240. Our 2019 report into the issue also recommends that consideration should be given to extending state pension carer credits to auto-enrolment. There’s much to do.

The gender pensions income gap can only be bridged if both policy makers and the industry take decisive action and with speed.

To find out more read our report, New Choices, Big Decisions – 5 Years On.

^{1 Based on 2018/19 figure: https://prospect.org.uk/article/what-is-the-gender-pension-gap/#:~:text=The%20gender%20pension%20gap%20is,gap%20that%20year%20(17.3%25).}

^{2 https://peoplespartnership.co.uk/downloads/new-choices-big-decisions-5-years-on/}

^{3 https://peoplespartnership.co.uk/downloads/european-semester-thematic-factsheet-labour-force-participation-women-en/}

^{4 https://peoplespartnership.co.uk/downloads/media-gender-pensions-gap-media-brief-20200915-vf/}

^{5 https://peoplespartnership.co.uk/downloads/media-gender-pensions-gap-media-brief-20200915-vf/}

When I first started working in the pensions industry almost nine years ago, pre-children and in a full-time position, I was blissfully unaware of what the gender pensions gap was.

Fast forward to last year, when I returned to work following the birth of my second child, acutely aware that my decision to work part-time will directly impact my retirement savings. I know about this because I work in the pensions industry and I have a greater than normal interest in my retirement and how I’ll fund it. Many other women aren’t so fortunate.

I’ve chosen to work fewer hours to allow me to spend some time with my youngest daughter until she starts school in a couple of years, and I’m not alone. So many women choose to do the same, others have no choice but to work part-time due to childcare or the lack of.

There is a problem, however, which lies in the lack of information surrounding the consequences of these decisions, which can come to light long after our little ones have flown the nest. It’s a contributing factor to the gender pensions gap, a difference in the amount saved which means that the typical female pensioner is £7,000 a year worse off than a man the same age.

The research New Choices, Big Decisions – 5 Years On¹ shows that part-time female workers in their forties and fifties would benefit from targeted communications from pension companies explaining what the impact of working either a day or two extra a week would have on their pension savings.

The ground-breaking study by the consultancy Ignition House, who interviewed volunteers at length about their attitudes and behaviours towards retirement, showed that some of the women interviewed hadn’t fully understood what the implications of working part-time would be on their pensions savings. Many had continued to work part-time once they’d the opportunity to increase their hours again. In fact, of those interviewed, women were more likely than their male counterparts to be in part-time work both at retirement and in the lead up to it.

The report is the latest in a series that examines the impact of Pension Freedoms since 2015. It recommends that workplace pension providers should explore the possibility of communicating with female members who work part-time, in their mid-40s and beyond to explain the ramifications of not having up to an extra two days a week of work would have on the size of their pension pot.

It’s clear that the gender pensions gap cannot be bridged by the pensions industry alone. It requires the government to do more to enable women to return to work or work more hours once they have children. Enabling the provision of better, more affordable childcare would be a huge step here, but I’m under no illusion of just how big a task this would be.

Do I think the pensions industry could do more? It’s not unreasonable to ask whether providers should be looking at ways in which they can communicate to female workers how they could increase the size of their retirement pot and remind them of the impact of extended periods of part-time working.

I’ll be upping my hours again once my children are older, many others will make the decision not to. Either way, the industry owes it to all women to enable an informed decision so that when they do retire, they have no regrets.

Read more

Read the report, New Choices, Big Decisions – 5 Years On.

¹ https://thepeoplespension.co.uk/media-centre/policy-research/new-choices-big-decisions-5-years-on

Jenna Gadhavi is a former Policy & External Affairs Business Manager for B&CE.

How fair a society do we live in? It’s a question that’s often asked and, depending on your world view, the answer often differs wildly.

Decision makers often like to tell us that we have never had it so good but even the best poker player would struggle to keep a straight face while claiming that we are all dealt the same hand.

One area where there is still much work to be done is the divide between the sexes. Despite talk that the gender gap is getting that much smaller, the evidence is clear that far more is needed to be done before the balance is truly redressed.

The gender pensions gap is a prime example of the stark gap; according to research by Prospect the union, the average female pensioner is £7,000 a year worse off than a man her age¹. Changes to pensions policy will help but if we’re going to really tackle pensions inequality head on, then we really must look at the ‘motherhood penalty’ women face when they have children.

Our research found that after having children, nearly half of women reduced their hours, more than a third left work altogether and more than one in five returned to work in a lower grade or lower paid role.

According to a YouGov survey commissioned by The People’s Pension, after having children nearly half of women (44%) reduced their hours, more than a third (36%) left work altogether, while more than one in five (15%) returned to work in a lower grade or lower paid role.²

These changes in their working lives have a significant impact on a woman’s ability to save for a pension at the same level as their male counterparts. It’s hard to avoid the unpalatable fact that women are more likely to need to stop or dramatically reduce their pension contributions, meaning they may miss out on employer contributions and lose the investment gains their contributions would accrue.

While many women choose to reduce their hours or stop working because they want to spend more time with their children, many said it didn’t make financial sense to keep working and pay for childcare or they couldn’t afford childcare. Almost four in 10 women (38%) who returned to work on reduced hours after having a child would have increased their hours if childcare was more affordable.

We’re calling on ministers to redress the balance by recognising caring as an economic activity which should attract workplace pensions contributions from the Department of Work and Pensions as well as covering the real cost of the guaranteed 30-hours per week childcare for all three and four year olds with a single, specific earmarked grant.

It must also be remembered that workers who earn more than £10,000 from one job are automatically enrolled into a pension, which excludes many part-time workers. Reducing the auto-enrolment eligibility threshold from that figure to the National Insurance trigger of £6,240 would create 1.3 million savers – two thirds of whom would be women.²

We have been waiting long enough for a timetable for the removal of the lower qualifying earnings band, as recommended in the Automatic Enrolment Review of December 2017. This would mean that all those automatically enrolled contribute from the first pound of earnings, rather than the current figure of £6,240.

This would also mean all those earning below the earnings trigger who opt into auto-enrolment would be entitled to an employer contribution.

While we’re on the subject of government promises, before the last election, the Conservatives made a manifesto pledge to look into the ‘net pay anomaly’, which means that 1.75 million workers, three quarters of whom are women, miss out on pensions tax relief, which worked out over a career amounts to an eye watering £8,000³.

The list of demands currently placed before our decision makers is as long as it ever has been in recent history but we must not allow potential reforms that make life fairer for more than half the population to be kicked into the long grass.

Read more

Read more and download our full research report on the gender pensions gap.