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The Department for Work and Pensions will create a definition of the gender pensions gap and build an evidence base to serve any "suitable policy response to tackle the issue", it has said in answer to recommendations by MPs.
The government also said it remains committed to implementing the recommendations of the 2017 auto-enrolment review in the mid-2020s but has ruled out an increase in minimum contributions.
While the response leads with the government’s commitment to reforming auto-enrolment as planned – by removing the lower earnings threshold and lowering the eligibility age to 18 – for the first time the DWP is also striking a conciliatory note on the gender pensions gap.
Questions about the gender pensions gap to the government were in the past met with statements that auto-enrolment will take care of it by extending coverage. Industry representatives are generally in agreement that coverage alone is insufficient to improve the pension prospects of women.
Now, the DWP said that “together with stakeholders across government, we are developing a coherent framework for understanding the scale and challenge of the gender pension gap”.
Government will “continue to collaborate to find a suitable definition of the gender pension gap, which enables the development of a metric for measuring progress on reducing the gap”, it said.
“This will not only allow us to monitor and drive the progress made under Automatic Enrolment beyond equalising participation rates but will also provide the evidence base for a suitable policy response to tackle the issue,” the response states, without giving further details.
A target, it adds, “can only be considered once a suitable definition has been agreed upon”.
However, the DWP also looks to industry to tackle the issue, saying that individuals, employers and the financial services industry can take actions to help equalise retirement outcomes for men and women, offering to “look at opportunities to promote this”.
Women’s careers and incomes are often hamstrung by their work as unpaid carers. Despite wanting to tackle the gender pensions gap, a carer’s credit, recommended for consideration by the committee, is out of the question for the DWP, which points to the past as a guide for the future. It says: “The system was not originally envisaged to provide credits for groups outside the labour market.”
More generally, DWP appears loath to commit to measures that go beyond collecting data, with higher minimum contributions being another case in point. The government argues that the current economic context does not allow for it, and that the 2017 review measures should be implemented “before looking at further changes”.
Joanne Segars, trustee chair at master trust Now Pensions, welcomed the government’s recognition of the gender pensions gap.
She said:“We’re pleased to see government endorsement of recommendations to close the gender pensions gap and believe that, over time, this can become a significant step forward for the industry and savers.”
By acknowledging the problem and its scale, government can set out realistic targets and a practical framework to reduce gender inequality in retirement, she added.
Research by Now shows that nearly one in five working women across the UK do not meet the qualifying criteria for auto-enrolment, compared to fewer than one in 10 male employees. Of those excluded by the £10,000 earnings threshold for auto-enrolment, four-fifths are women. The average woman reaches retirement with an estimated £147,000 less in pensions savings than the average man, according to Now.
“We urge government to commit to tangible actions that will address the systemic problems women face in saving via the workplace,” said Segars.
“We are ready to collaborate with government to inform its understanding of this issue, and, where we can, provide data for its evidence base, so industry and policymakers can act to improve pensions equality and deliver a fairer pensions system for all.”
Union representatives were among those who had highlighted the absence of a policy to tackle the gender pensions gap to the Work and Pensions Committee.
TUC pensions policy officer Jack Jones said properly measuring and reporting on the gender pensions gap would be a step in the right direction, but noted that many of the policies that could improve retirement incomes for women are known.
"So it's disappointing that DWP is still ignoring the select committee's call to set a date for implementing the 2017 auto-enrolment reforms,” he said.
"Instead of tackling this systemic problem, the government is trying to push responsibility back onto individuals at a time when many are already struggling."
The TUC said it has not been contacted by DWP about working on the gender pensions gap.
Pete Glancy, head of policy at Scottish Widows, gave evidence to the select committee. Scottish Widows research shows that men and women are now saving adequately in roughly equal proportion, but decades of under-provisioning for women mean that women will have much smaller pension pots at retirement for decades to come.
Glancy said the shortfall usually bites when women are unexpectedly left on their own.
"Women tend to take more time out of the workplace to look after children or elderly relatives, meaning they give up work or work part time on a lower salary. This can be a problem when relationships break down and end in divorce. We would like to have seen the government put pensions on a more statutory basis during divorce proceedings," he said.
"We’d would also have liked the government to reduce the qualifying earning for auto-enrolment, so the low paid part time workers, two-thirds of whom are women, get the opportunity to benefit from workplace pension contributions," Glancy added, and suggested employers could enrol these workers voluntarily.
Industry warns inaction will have consequences
More generally, industry was hoping to see greater commitments from the DWP on improving auto-enrolment.
Phil Brown, director of policy at People’s Partnership, provider of master trust the People’s Pension, said the government’s response to MPs’ recommendations “doesn’t fully address how it plans to tackle the very real problem of undersaving in the future”, calling it “an issue that will not go away on its own”.
Mark Futcher, head of defined contribution at consultancy Barnett Waddingham, believes the government is aware that the UK is heading towards a ‘cost of retirement crisis’.
“Some hesitance in the face of the current cost of living crisis is understandable, but there’s no excuse not to be putting plans in place to get people closer to the 12% savings target in the next few years,” said Futcher.
What should the government do to improve pension outcomes for women?