Equal Pay Day: Women save more but still face a gender pensions gap

Pardon the Interruption

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Today marks Equal Pay Day, the day women stop earning for the rest of the year relative to men. The gender pay gap becomes an even more acute pensions gap in retirement. How can we begin to shrink this gap?

Equal Pay Day is a national campaign led by the Fawcett Society in the UK. It marks the day in the year where women effectively, on average, stop earning relative to men because of the gender pay gap. This year the gender pay gap, as calculated by Fawcett, is 11.9%, up from 10.6% last year.

Also increasing is the gender pensions gap. Trade union Prospect’s latest research shows that the gap has increased to a shocking 37.9% in 2019-20. 

But according to Scottish Widows, the adequacy gap (percentage of the population saving at least 12% of their income or on a defined benefit pension) has been shrinking among both men and women. According to their research the gap has now closed, with the same proportion of men and women saving adequately. This is in part driven by the introduction of automatic enrolment. 
 
“While women are saving more than ever, the fact of the matter is that there’s still a big proportion of women that are at risk of walking into retirement with insufficient funds. Without a workplace or a private pension, they will be relying on the state pension alone in retirement – which for many is simply not enough to cover the costs of a comfortable retirement,” said policy and strategy lead at Barnett Waddingham, Amanda Latham.
 
What might be driving the difference in pension participation?

Research by the Institute for Fiscal Studies shows that on average across all employees (whether saving in a pension or not) women of all ages actually contributed more as a proportion of their earnings each year than men. However, this is driven by factors such as women being more likely to work in the public sector, where contribution rates are typically higher.

This research also revealed that by examining pension saving among men and women within each sector, the average saving rates of male and female employees are only similar until around the age of 35. There is a clear gap that forms around this age, with average contributions continuing to increase with age for men but not changing for women.

This timing mirrors the gender pay gap and suggests that the arrival of children and related employment decisions have a big impact. As the Fawcett Society has highlighted, unequal shares of caring work in the home done by men and women are a key factor in the gender pay gap. This then results in women being more likely to work part-time and work part-time for longer.

“It's typical for women to take a big hit on their pensions when they have children. This means many can be left in a precarious financial position and forced to rely on their partner when it comes to retirement. All too often the gender pay gap becomes a pensions gap in retirement, and this isn't good for women, society or our economy," said Fawcett Society chief executive, Jemima Olchawski.
 
Research by Legal & General in March this year found that men over 50 have nearly twice as much as women in their pension pot. It also revealed that women over 50 are significantly more likely to feel they have not saved enough to fund their retirement.
 
According to research by the People’s Pension released in March this year, a woman who chooses to return to full-time work aged 42 after 14 years of working part-time could be as much as £1,224 a year better off in retirement than a woman who stopped working at 28 and continued part-time hours throughout her career. 

Speaking on this research report, Phil Brown, the director of policy and external affairs at B&CE, said this has shown “sobering examples of women who now regret that they didn’t fully consider what impact sustained periods of working part-time would have on them in retirement”. 

He also recognises that this is not solely up to individuals: “It requires the government to do more to enable women to return to their roles or work more hours once they have children. One of the main ways of doing this would be the provision of better, more affordable childcare.”

A call to action from government

Prospect say that a huge barrier to tackling the gender pension gap is the “government’s lack of attention to it”, highlighting that there is no government estimate of the gender pension gap or policies to address it. The Department for Work and Pensions has since released a report on workplace pension participation and savings trends in September.

They call on the government to create measures to make affordable childcare more widely available so that people who want to return to work can do so, and reform automatic enrolment at the earliest date possible, among many other factors. 

Research from the IFS looked at differences in saving rates among men and women comparing rates from 2012 and 2019. In comparison to 2012, rather than participation diverging at a particular age as previously mentioned, from 2019 women are slightly less likely to be in a pension at all ages than men, although the level of participation among both is considerably higher. Automatic enrolment therefore has had a fundamental impact on the nature of the gender gap in pension saving rates.

“In a system designed around inertia, we need to see policymakers and employers offering better default strategies rather than relying on pension holders to come up with them themselves,” said Latham. “The existing framework is letting too many women down, when it is in the interests of wider society for people to be well prepared for retirement.”

 
What changes should policymakers and employers be making to help close the pension gap?