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 recent statistics, there is still a shockingly high gap in pension income, with Aviva stating a gap of 40.3% in pension savings between women and men – more than twice the level of the gender pay gap that year (15.5%). This means that, on average, there is a difference in pension income of about £7,500 a year between men and women.
As the amount of 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 working, which also impacts the amount a person will contribute towards their pension.
With last week celebrating International Women’s Day, it is important to highlight the significant difference between the gender pension gap and how the issue can be addressed.
Pensions gender pay gap – the stats
Statistics published by Aviva looked at 4.5 million workplace pension pots and saw a definite trend in the gender pension gap accelerating with age:
- 16% for 35 to 39-year-olds
- 22% for 40 to 44-year-olds
- 32% for 45 to 49-year-olds
- 43% for 55 to 59-year-olds
This suggests a clear line in the sand around the time women are making decisions with regards to their career and childcare. 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.
For example, a worker reducing their hours by 40% will see a 40% drop in income. Also, lower employee contributions also mean lower employer contributions, so it’s a double whammy. 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 pensions gender pay gap. For example, trade union, Prospect, have 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.”
As the Government have, at the time of writing, taken a few steps to address the issue of the pensions gender pay gap, there are a few things you can do to reduce the gap. Here are some suggestions that might help:
1. First and foremost, whilst it may sound obvious, contribute more towards your pension, if you are in a position to do so.
2. Start saving towards a pension as early as you can.
3. If you are taking a career break, if possible, continue to make regular contributions towards your pension, even if they are only small contributions.
4. In relation to the State Pension, apply for National Insurance credit on gov.uk, if you are eligible to. 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.
5. If you are married but unfortunately have to divorce, keep pensions in mind when it comes to agreeing on a financial settlement.
6. For employers, there may come a time when a workplace pension may be a woman’s main source of income, so it’s important to help them do what they can to keep it on track.
How can we help?
Zoe Till is a Senior Associate and Chartered Financial Planner in our expert Investment Management team.
For further advice on reviewing pensions arrangements or cash flow models which project forward potential income streams to calculate affordability and sustainability in retirement please get in touch with Zoe or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.
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