Please note that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
What is the gender pension gap?
The gender pension gap is the difference between the amounts women typically have in their pension pot compared to the amount men have.
According to research by consultancy Lane Clark & Peacock LLP (LCP), a new gender pay gap could open up in defined contribution (DC) pension plans if there is a continuous rise in inequalities between men and women in workplace schemes.
Different types of pension schemes can alter the amount you receive. DC pension plans are based on member contributions whereas defined benefit schemes pay an annual pension based on the member’s salary. Defined benefit schemes have become far less common over the last ten years.
Due to this decline, LCP has said the difference between men and women with regard to DB pensions is likely to narrow. The consultancy also stated that the gender pension gap regarding state pensions had been almost disregarded for the recently retired.
The LCP has urged not only the Government but employers and the pensions industry, to take action in order to stop inequality continuing to rise in DC schemes.
Laura Myers, LCP partner, said:
“Our research suggests that there has been welcome progress in some aspects of the gender pension gap, notably the reduction in inequality in state pensions.
“In a world of [DC] pensions in particular, pension outcomes hold up a mirror to inequalities in the workplace and the different labour market experience of men and women. Without concreted action by the government, employers and the pensions industry to tackle these underlying causes, the gender pension gap may be with us for decades to come.”
The LCP report comes after the Department for Work and Pensions (DWP) published (June 2023) an official pensions gender metric. The statistics showed how a woman’s private pension pot was found to be 35% less than men’s when it came to retirement in the years 2018 to 2020.
The consultancy took into consideration the DWP figures as well as an extended review of the gender pensions gap and found a range of issues that lead to inequality in retirement savings. As the amount people typically contribute towards their pension is a percentage of their wages, the current and aforementioned gender pay gap means that women, on average, have less money to save towards their pension. This doesn’t take into account aspects, such as career breaks, child-caring responsibilities, and part-time work, which also impacts pension contributions.
The LCP also pointed out that women are often likely to be worse off after a relationship breaks down due to the uneven pension provision usually given after a divorce.
Pensions gender pay gap – the stats
Statistics published by Aviva looked at just over five million pension plans and saw a definite trend in the gender pension gap accelerating with age:
- 21% for 35 to 39-year-olds
- 24% for 40 to 44-year-olds
- 27% for 45 to 49-year-olds
- 32% for 50 to 54-year-olds
This shows how the impact is compounded over time. With breaks and many returning to the workplace part-time, it can almost be impossible for women to catch up.
Taking a break from work, whether that be for maternity leave, taking a sabbatical, or being a carer, usually means taking a break from paying into a pension, or at least reducing the amount contributed. This has a big impact on the retirement income employees will have.
Reduced hours will lead to a reduction in both employee and employer contributions as a result of falling income. This would mean an employee would have to significantly increase their pension contribution to make up for the shortfall. However, this might prove to be difficult with the increased cost of living and reduced pay.
Aviva sees this in their workplace pension data as contributions for men keep increasing up to retirement, whilst the average contributions for women stall, leading to an increased pension contribution gap.
How can this issue be addressed?
There have been calls from various organisations for the Government to take action and tackle the issue of the pension gender pay gap. For example, trade union, Prospect, has called for:
- “A statutory requirement for the government to report to Parliament on the gender pension gap and its plans for tackling it
- Reform of automatic enrolment from the earliest possible date
- An inquiry by the Work and Pensions Committee on the gender pension gap
- An additional state pension credit for those who are not working because they are looking after children under 12
- Measures that make affordable childcare more widely available so that people who want to return to work can do so
- An independent Commission to consider the appropriate level of contributions under automatic enrolment
- A concerted campaign to encourage higher take-up of credits that can boost women’s pension income
- Changes to the tax system to resolve the ‘net pay anomaly’ whereby low earners do not benefit from tax relief on their contributions.”
LCP is also urging the Government to review the increased amount of cohabiting couples and ensure focus on how gender pension inequalities may persist after a relationship has broken down, as well as the current legislation regarding pension sharing when getting divorced.
It is also advised that employers go beyond reporting to understand and see the pay gaps between their employees and tackle any underlying causes of this.
A spokesperson for the DWP has emphasised how auto-enrolment has transformed the pensions landscape. This requires anybody over the age of 22 who is earning more than £10,000 to be automatically enrolled into a workplace pension.
The spokesperson also commented how the first official gender pensions gap measure has been great to see the difference between employees’ pensions and how it can be used to track the efforts made by the Government and the company to help close the gap.
In May 2023, over 20 leading pension companies joined to form the Pensions Equity Group which aims to help prevent inequality regarding employees’ pensions based on gender.
As the Government has taken a few steps to address the issue of the pensions gender pay gap there are still things you can do to reduce the gap. Here are some suggestions that might help:
- First and foremost, whilst it may sound obvious, contribute more towards your pension, if you are in a position to do so.
- Start saving towards a pension as early as you can.
- If you are taking a career break, if possible, continue to make regular contributions towards your pension, even if they are only small contributions.
- In relation to the State Pension, apply for National Insurance credit on gov.uk, if you are eligible. Additionally, check your National Insurance record on gov.uk to find out if you will get the full State Pension amount when you retire. In order to claim the full State Pension amount, you need to have made a total of 35 years of National Insurance contributions or credits. If it is unlikely that you reach this amount, it may be possible that you can fill in the gaps.
- If you are married but unfortunately have to divorce, keep pensions in mind when it comes to agreeing on a financial settlement.
How can we help?
Jack Green is an Independent Financial Adviser in our expert Investment Management team, specialising in pensions and retirement planning, cash flow modelling, investment advice for individuals, Inheritance Tax planning and protection planning.
For advice on or further information in relation to the subjects discussed in this article, please contact Jack or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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