At PensionBee, we’ve been investigating the ‘pension gap’ between men and women since 2016.
Our own customer data (see second table below) shows that pensions belonging to women are around 40% less than those belonging to men. Research from Money Wise suggests the gap is more than 50%. While we found these findings troubling, admittedly we weren’t too surprised given that the gender pay gap is such a well-publicised phenomenon.
With the gender pay gap taking so long to close, we believe it’s important for women in particular to seize control of their finances. It’s one of the reasons why we’re determined to make pensions accessible to everyone.
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 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 recent 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%.
And research from Money Wise suggests that women have more than 50% less in their pension pots, on average, than their male colleagues.
Gender pension gap UK
Just like the gender pay gap, the gender pension gap varies by age too.
|Age||Gender pension gap|
Source: PensionBee, December 2020. Based on 66,244 customer records.
The result is that men have a pot that’s almost twice the size as women by the time they reach their 50s.
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 pension industry. Speaking on the data 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 pension 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 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 pension gap is complex. And while we don’t claim to have it all worked out, we do think there are a number of obvious elements at play.
Women’s pension savings are hit while they’re working
Fundamentally, if women earn less, they have less money available to pay into a pension. If you don’t have as many pounds in the first place, you can’t put as many into retirement savings.
Contributions to pensions at work are normally based on a percentage of salary. On lower pay? 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, then from April 2019 you’ll have to pay at least 4% of qualifying earnings into a pension, topped up by at least 3% from your employer and 1% from the tax man.
Tax relief on pensions is more attractive for higher-rate taxpayers, so women who don’t break into higher tax brackets may be less inclined to pay into a pension. Anyone lucky enough to pay higher rate tax can claim an extra 20% tax relief via their tax return, or an extra 25% tax relief for additional rate taxpayers.
Women 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 the pension gap does too.
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 stop contributions while on maternity leave in an attempt to make ends meet. It can be hard to restart pension contributions if you don’t return to the workforce – because if you don’t have cash coming in, what can you pay into a pension? Long career gaps, with little or no pension saving for years, are a massive disadvantage for women.
Of course, this is linked to wider socio-economic trends: women are still much more likely to stay home with the children. 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.
Figures show that UK childcare costs have been rising for years, while real term 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.
Of the 8.4 million part-time employees in the UK, nearly 3/4 are women, according to labour market stats from the ONS, meaning women are disproportionately affected. 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.
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 pay gap (and the pensions 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 2020 pandemic - it would mean that parents weren’t so restricted when it came to looking for a job that fitted around their childcare arrangements.
Women are less likely to engage with their finances
Saving for a pension isn’t the only aspect of personal finance that women appear more reluctant to tackle. According to BritainThinks, the financial 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.”
Attitude to risk seems to be different too. When polled, women were more likely than men to say that they cared about security when choosing finance products, while men were more likely to say they cared about growth, returns and profit. As financial advertising tends to emphasise these attributes that are apparently more appealing to men, this may contribute to the pension gap.
Tips to boost your pension savings and narrow the gender pension gap
If the pension pay gap is to close, it’s crucial for women to get more pounds into their pensions. Here’s our nine point action plan to narrow your own gender pension gap:
1. Grab 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.
3. Whack up your contributions
Holly Mackay of BoringMoney.com 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 an inheritance or windfall - 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. Stay engaged with your career
According to Thisismoney.co.uk, a third of women have fallen behind with debt payments and one in 10 has at least £10,000 of debt. The highest level of debt is among those under 45 and it seems that single mums struggle the most. Part of the reason women take on more debt is of course because of the pay gap, which itself results from career breaks associated with childbirth and part-time work.
One way to narrow the pay gap and avoid unmanageable debt is to remain actively engaged with your career. Our CEO Romi’s advice is always to do a job you love because you’re more likely to be good at it and ultimately succeed. And if you think you’re getting underpaid relative to your male colleagues, get an action plan together for negotiating a pay rise. After all, research shows that women are often better at planning and organising, have more empathy and take greater personal responsibility for their work. Moreover, a workplace is only truly successful if we have diversity.
5. Check out pension arrangements during maternity leave
Some employers will continue paying into your workplace pension while you’re on maternity leave, even after maternity pay stops. Make sure you don’t miss out!
6. 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 doing. Otherwise, you could miss out on National Insurance credits towards a chunk of your State Pension.
7. Build pension saving into the family budget
If you’re part of a couple, and one person takes time out for caring responsibilities (man or woman!), plan how to fund their pension out of family income. Even non-taxpayers can save up to £2,880 a year into a pension and get £720 added by the taxman. Is there enough money for the earner to pay into the non-earner’s pension?
8. 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 can afford to choose investments that take more risk in the hope of higher returns.
9. Consider switching to save money
Many women routinely collect all sorts of points, from Avios to buy-one-get-one-free coffee reward cards. They may go out of their way to get their nails done in a particular salon across town to save cash, but have yet to switch pension provider, energy provider or any other provider.
Recent research from Gocompare.com has found that men are significantly more likely 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. This may be an issue of product fit again, but either way, women could lose out on great deals if they don’t consider switching!
How PensionBee is doing things differently
At PensionBee we’re doing things differently. We’re part of a new generation of finance companies that are making it easier for everyone to take control of their finances.
Our aim is to make pensions more customer-friendly, more transparent, and easier to understand. We’re led by a female CEO who’s committed to designing and marketing products in a way that’s inclusive, and that encourages everyone to save for a happy retirement.