Women are currently trailing men by about £100k in pension savings, new research by Scottish Widows suggests, while closing this gap will take at least 20 years without action. The provider is calling for implementation of agreed auto-enrolment reforms, higher default contributions and a shift to joint financial planning. The report is also urging the creation of a lifetime savings commission. 

Scottish Widows’ latest ‘Women and Retirement Report’ has been running for 20 years but says while the gap in savings at retirement has narrowed in that time, another two decades are needed to close it. 

The provider therefore wants to see action to address the looming pensions poverty for women. Jackie Leiper, managing director, said: “Without drastic action, the gender gap will take another 20 years to close, and there is a very real risk that we won’t see pension parity for many generations to come.” 

The gender pensions gap is still at 30% in overall projected retirement income, the report authors say. Women’s savings levels at retirement mean a jawdropping 42% are expected to live in poverty, along with 35% of men, according to Scottish Widows. On average, women are projected to receive an annual pension of £12,000 after income tax and housing – below the Pensions and Lifetime Savings’ minimum retirement standard – while men will be getting £17,000 on average.

To make pensions less hostile for women, the firm wants to see the implementation of auto-enrolment reforms that have already been legislated for – scrapping the lower earnings threshold and lowering the minimum age to 18 – along with other measures to bring low earners and the self-employed into pension saving. 

Scottish Widows is also urging the government to increase minimum auto-enrolment levels to 12% from the current 8%. 

In addition, it says a shift towards joint financial planning is needed “so that women do not lose out when their partner is buying an annuity or in the event of divorce”. 

Women can be left with little to no income in retirement if pensions are overlooked on divorce or if their partner had an annuity and dies first, as 85% of annuities purchased are single life annuities. Scottish Widows therefore wants new legislation to require that pensions are discussed as part of divorce proceedings, and a law that means joint annuities become the default option at the point of sale. 

The firm is also calling for ‘family pension plans’, asking government to allow employees to choose their own pension and providers to offer a plan that a couple contribute towards. 

It hopes to see wider labour market reforms, including equalising parental leave and better childcare support. Lastly, it calls for the abolition of a requirement to fill in a child benefit form in order to receive carer’s credit for state pension purposes, as this obscure requirement means the partners of high earners – who are not entitled to child benefit – risk losing out on state pensions. 

The government produced its own data quantifying the gender pensions gap for the first time in 2023, finding a 35% difference between women and men’s pensions, but did not set out any specific policy proposals in response.

However, pensions minister Emma Reynolds recently said she intends to look at who has how much pension in part two of the Pensions Review.

A government spokesperson said the government is “committed to closing the gender pension gap”, pointing to the increased coverage of women through auto-enrolment.

“Our landmark pensions review will explore options to ensure under-pensioned groups have the dignity and security they deserve in retirement,” the spokesperson added. “We will also continue to track the collective efforts of government, industry and employers to tackle this issue through our Gender Pension Gap reporting.”
 

 

 

While the causes of the gender pensions gap mean the onus for fixing it falls largely on employers and the state, “trustees shouldn’t use this to absolve themselves of all responsibility”, said Sally Minchella, a director at LawDeb Pension Trustees. 

 

They play a role as stewards of member outcomes, she said, mainly to help educate members. Minchella feels the pensions dashboards will be a useful tool for this: “For women, this will help demonstrate the impact of gaps and - hopefully - raise awareness of how they may be able to mitigate the impact.” 

 

She suggested schemes should have a wider communication strategy to help women understand their options for managing their benefits or taking them in a different form. 

 

 

Despite progress already made, including the new state pension, some feel the current system is outdated as pensions are accrued almost exclusively through time spent in paid employment, being modelled on a traditional male life pattern. 

Paul Leandro, a partner at consultancy Barnett Waddingham, stressed the need for pensions to modernise.

“Despite being introduced to address the UK’s worryingly low level of pension savings – and having some success in doing so – issues with our auto-enrolment system are reflective of an archaic time in society where men were the primary breadwinners,” he said. 

“Whilst society has progressed, pension structures have remained frozen in time and women continue to face the brunt of this systemic misrepresentation. If our pension system is to work for everyone, we must actively tailor it to the realities of everyone’s individual lives,” he added.

Simply telling women to contribute more means overlooking the fiscal, behavioural and societal issues that are contributing to the continuation of the gender pension gap, said Leandro. 

Even though national insurance has just been raised for employers, he argued that “increasing default auto-enrolment levels and auto-escalating pension contribution levels when returning from career breaks are just a couple of examples of actions that can begin to overcome the significant shortfalls in women’s pension savings". 

Among others, he also suggested employers should consider making pension contributions during parental leave and ramping up gender pay gap analysis. 

“An important thing is to take time to consider the real-life impact of the pay gap and how it impacts employees in real terms,” he noted.