At PensionBee, we’ve been investigating the ‘pension gap’ between men and women since 2016. Our own customer data (captured below) shows that pensions belonging to women contain around 40% less than those belonging to men, and that the gap only widens with age.
There are lots of factors that contribute to the gender pension gap, not least the gender pay gap where women are systemically paid less than men for equal work. It’s our vision to live in a world where everyone can look forward to a happy retirement in the form of financial freedom, good health and social inclusion. Addressing financial inequality wherever it exists is a key part of this.
The gender pay gap
The gender pay gap measures the difference in hourly earnings between men and women, excluding overtime. According to the Office for National Statistics, the gender pay gap among full-time employees was 7.4% as of April 2020. When comparing all employees, including those in part-time work, the gap increases to 15.5%.
The gap changes depending on how you slice the data, but one of the most stark differences is when comparing the gender pay gap by age: women under 40 years of age earn about the same as men for full-time work, but women over 40 earn up to 13% less.
Gender pay gap for full-time median gross hourly earnings excluding overtime. Source: ONS
The pension pay gap
The pension pay gap measures the difference in pension pot size between men and women. Our own analysis based on PensionBee customer data, shows that women have, on average, over £9,000 less in their pension pots than men - a gap of 40%.
Gender pension gap UK
Just like the gender pay gap, the gender pension gap varies by age too and gets wider in the run up to retirement. By the time savers reach their 50s, men have a pot that’s almost twice the size as an average woman’s.
|Age||Gender pension gap|
Source: PensionBee, December 2020. Based on 66,244 customer records.
Romi, our CEO, has called for greater awareness of the inequality facing female savers - not just from their own employers and the government, but also from the wider pensions industry. Speaking on the findings she commented:
“Our data paints a worrying picture for female savers. Closing the pay gap will take time, making it all the more important for us women to take control of our pension savings now. The pensions industry has left many women isolated from finance and we’re determined to change that at PensionBee. Better saving should be simple and accessible for everyone.”
Jemima Olchawski, Head of Policy and Insight at the UK’s leading charity campaigning for gender equality and women’s rights, the Fawcett Society, added:
“Right across their lives women earn less and so have less to save for their pensions. What’s more, whilst auto-enrolment has been an important step forward, women are still more likely to be excluded from the benefits. All this leaves women at risk of poverty and economic dependence in their retirement. It’s time to speed up the pace of change, close the gender pay gap and banish the dated stereotypes that mean women continue to be most likely to pay the price of care.”
What’s causing the gap?
Understanding the reasons behind both the gender pay gap and the gender pension gap is complex, however there are some obvious elements at play.
Less pay equals less savings
It’s no surprise that if women earn less, they will have less money available to pay into a pension. Unfortunately inequality in pay doesn’t just affect women in the here and now, it also has serious implications for their futures. When women are paid less in their working lives, they will be paid less in retirement too.
Contributions to pensions at work are normally based on a percentage of salary. If you’re a low earner you’ll pay less into your pension and see smaller sums added by your employer and by tax relief. The good news about pensions is that for every £100 a basic rate taxpayer puts into a pension, the taxman will add an extra £25 on top.
If you’ve been auto-enrolled into a workplace pension, from April 2019 you’ll have to pay at least 4% of qualifying earnings into a pension (plus 1% tax relief), topped up by at least 3% from your employer. Higher and additional rate taxpayers can claim extra relief through their Self-Assessment tax returns.
Women are more likely to take time out
Data from the Institute for Fiscal Studies shows that around the age that many women take time out of work to care for children, the gender pay gap widens and so does the gender pension gap.
It makes sense that the two things are connected, because if you have less take-home pay, then you have less to put into your pension pot. Many women pause their pension contributions while on maternity leave and we know that when women return to work, they make up 3/4 of the part-time workforce in the UK. The combination of lower salaries and long career gaps, with little or no pension saving for years, are a massive disadvantage.
Of course, this is linked to wider socio-economic trends: women are still much more likely to stay home with children and care for elderly relatives. The uptake of shared parental leave, which means women give some of their maternity leave allowance to their partner, has been poor, perhaps largely due to the way the legislation is being implemented. Many organisations offer higher maternity pay than shared parental pay, and a minority of men say that the concept is encouraged by their employer.
Returning to work full-time is tough
Once you’ve been out of the workforce, it’s an uphill struggle to get back in, for many reasons. Those who’ve had a career break may be seen as less skilled and out-of-date. As a society we don’t see child-rearing as something that develops transferable skills, and many women (and men) who have taken time out to care for children find that they’ve slid right down to the bottom of the job market.
In many ways, we’re still living in a world that’s set up for one parent working full-time to “bring home the bacon”, while the other parent stays home to bring up the kids. And the parent staying at home is still more likely to be the mother. Childcare costs, inflexible workplaces, and unfavourable attitudes towards returners all implicitly enforce this, even while the explicit narrative tells us that both parents should be able to work and women aren’t at a disadvantage. Plus, anyone whose promotion prospects are limited by career breaks or part-time roles will then miss out on increased salaries and increased pension payments.
Figures show that UK childcare costs have been rising for years, while average wages have been falling. With 50 hours of childcare per week costing an average of £11,000 per year, for many families it just doesn’t add up for both parents to work full-time.
Employers are afraid to embrace greater flexibility
Women returning to work therefore often seek something that’s more flexible or part-time, but this limits job options, pushing many into low-paid work and hindering career progression. As women get older, the gender pay gap (and the gender pension gap) grows. Perhaps one of the biggest changes that would begin to close the gap would be a move towards more flexible and progressive workplaces.
Imagine if more workplaces saw flexible hours, home-working and job-sharing as things that could benefit all employees, creating a happier and more productive workforce, rather than perceiving them simply as the awkward and career-limiting requirements of parents. If this attitudinal and cultural shift took place - which may become more likely due to the coronavirus pandemic - it would mean that parents weren’t so restricted when it came to looking for a job that fitted around their childcare arrangements.
Another option would be for employers to help solve the affordable childcare problem by installing creches at workplaces, or incentivising mothers to return to their jobs in other ways. And crucially, once there, providing adequate support and policies to help women catch-up on time spent out of the workforce.
The financial system isn’t designed for women
Our financial systems continue to be set up in a way that systematically disadvantages women. According to BritainThinks, the financial services industry, while not actively ignoring women, presents products in a way that excludes them, with one woman remarking that “the more you go into the bank, the more detailed and complicated the products get, the further away from consumer research you get and the more older men are in charge of products.”
Financial services is an industry heavily dominated by men, and therefore more often than not men are in charge of designing the products and marketing them. Until women are more widely represented at all levels, progress in making financial products more accessible will be slow.
Tips to boost your pension savings and narrow the gender pension gap
Gender equality is essential for economies and communities to thrive, and the government and business leaders must be pressured to introduce stricter measures to address the gender pay gap urgently. At the same time there are some steps women can take to grow their retirement savings to help narrow the gender pension gap:
1. Don’t turn down free money
When you pay into a workplace pension, your employer has to add money on your behalf, plus you get tax relief on top. Don’t opt out of a workplace pension because retirement seems a lifetime away – it’s like turning down a pay rise.
2. Start saving early
Time is the magic weapon when it comes to pension saving, as those early payments have longer to benefit from compound interest. Even if you can’t afford to save a lot, it’s important that you get started.
3. Consider making lump-sum contributions
Boring Money founder Holly Mackay frequently cites a surprising statistic: only 10% of British women have a Stocks & Shares ISA, compared to 17% of men. According to the Money Advice Service, we should be keeping about three months’ essential outgoings in a bank account and more than six months’ essential outgoings is considered too much. If you think you’re sitting on spare cash - or you receive a cash injection unexpectedly - consider bumping up your pension payments.
Have a look at our short guide on what you could do with your savings, from paying down debt to topping up your pension.
4. Check out pension arrangements during maternity leave
The contributions you make to your pension during maternity leave will be based on your actual earnings during this period which may be lower than your usual payments. That means your contribution level may fall over the duration of your maternity leave, if you don’t increase your payments. Some employers, however, will continue paying into your workplace pension while you’re on maternity leave, even after maternity pay stops, so it’s worth investigating your workplace policy.
5. Register for Child Benefit after having children
Even if you’re not entitled to payments because your partner earns over £60,000 a year, it’s worth registering anyway. Otherwise, you could miss out on National Insurance Credits which go towards your State Pension entitlement.
6. Build pension saving into the family budget
If you’re part of a couple, and one person takes time out for caring responsibilities, plan how to fund their pension from the family income. Even if you’re not working, you can pay £2,880 a year into a pension and the government will top it up to £3,600 (thanks to tax relief).
7. Make the most of your pension money
Track down pension pots from previous employers and any private pensions, then check where your money’s invested and how much it costs. If you have several years to retirement you may choose to explore investments that take more risk, such as company shares, in the hope of generating higher returns in the long-term.
8. Consider switching to save money
Research from Gocompare.com has found that men are significantly more likely than women to search for better deals when it comes to insurance, energy, broadband and bank accounts - 61% of men have switched in the last year, compared to 53% of women. There are usually always savings to be made, so it’s worth doing an audit of your monthly outgoings and seeing where you can switch and save.
How PensionBee is doing things differently
At PensionBee we’re doing things differently. Our aim is to make pensions simple by giving consumers increased visibility and control of their retirement savings. We’re passionate about promoting diversity and inclusion within our team culture and are committed to achieving wider representation and equality in the pensions industry.
Half of our team consists of women and around a third self-identify as a minority ethnicity. We want our team to be reflective of our customer base, and for our team to be the rule, rather than the exception in the industry.
Risk warning: As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.