PHILIPPA: Welcome to episode three of the Pension Confident Podcast! My name is Philippa Lamb, stepping in for Peter Komolafe, and hold onto your hats this time because we’re diving into the gender pension gap.
Music kicks in
PHILIPPA: Thanks for listening in - we’ve had a great response to the first two episodes - keep those five-star ratings coming if you’re enjoying it and if you have any feedback we would love to hear it. Drop us a line: email@example.com or on Twitter it’s @pensionbee.
Now, as we say every time, we’re here to help everyone get the best out of their pension and we do mean everyone because when it comes to pensions there are some major inequalities and this time we’re going to tackle the gender pension gap. So, what is that? Well, research from PensionBee tells us that women face real obstacles when it comes to creating a comfortable retirement. In fact, the disparity between men and women’s pensions has grown to almost 60% in some parts of the UK. So, how did we get here? What is standing in the way of women saving enough for their retirement? And what can we do about this problem?
The usual quick disclaimer before we start, anything discussed on this podcast should not be regarded as financial advice and, as always with any investments, your capital is at risk. Now I’ve got three expert guests with me today: Romi Savova, CEO of PensionBee, Sam Brodbeck, Personal Finance Editor at The Telegraph and Emilie Bellet, founder of the financial education company Vestpod which is all about empowering women to save and invest.
Hellos from everyone
PHILIPPA: We are here, as you know, to talk about pensions so before we get going, it would be great to hear what a fabulous retirement actually looks like to all of you. I have to say, for me, a dream retirement is all about freedom and comfort - I want to be able to live somewhere lovely. I’ve always travelled a lot so I definitely want to do lots of that when I’m winding down work and retired. How about you?
ROMI: Well, for me, I haven’t visualised it perfectly yet, but it definitely involves my three children. I recently had a baby, only very recently. And so retirement is a little bit further away in terms of my thought pattern, but it involves them and of course, some sunshine.
EMILIE: Same for me around freedom and I feel I’m still going to be working in some capacity, helping maybe founders maybe - hopefully investing some money helping some businesses grow and spend time with my family. I see my in-laws coming to London, babysitting my kids and I think that’s brilliant.
SAM: We’ll I’m on paternity leave, so it’s kind of like being retired.
PHILIPPA: That’s not retirement, is it?
SAM: Maybe you’re right. I think I just want to do a lot of walking on my own. No one talking to me. I do like them, but also I’d like them not always to be there.
PHILIPPA: Alone time. Important for all parents, I think.
What is the gender pension gap and why it happening?
PHILIPPA: Okay, I think we all know what we’re hoping for, but how do we get there? And particularly - I’m sorry, sir - but particularly how do women get there? Let’s some kick off by defining what we mean, when we talk about the gender pension gap. Romi. I know that PensionBee has been looking into this. What exactly is it?
ROMI: Well, the gender pension gap is simply the difference between men’s and women’s pension pots, and it can be measured at any point in time but it’s particularly large when women get to retirement, because it takes many, many years to accumulate and build up a pension and the disparity between men and women actually increases with age. So when we look at the statistics and the numbers across the country, on average, women’s pension pots are about 38% smaller than men’s and that inequality is present in pretty much every region of the UK, and it’s pretty appalling.
PHILIPPA: So at some we all know about the gender pay gap, don’t we? I mean, is that the root cause of the pension gap that Romi has been talking about?
SAM: I think so. If you get paid less, you save less, and then that’s extrapolated over time.
PHILIPPA: But there’s more to it.
SAM: Yeah, it’s career breaks that women have typically more of, which affects both those things, I suppose. So you don’t save for the years or booking through a baby probably, unless you’re very organised. And then potentially you’re missing out on promotions and other things that enhance your pay.
PHILIPPA: Emilie, what do you see as the key issues driving this gap?
EMILIE: So I mean, if I just take my personal example, I thought starting working I would actually never stop working but when you look at women’s career we have some - we may have children. We are still the primary carers for families. So, what happens during these times is that we don’t earn, we don’t save money and this money is not compounding over a longer period of time.
PHILIPPA: I mean, Romi, there’s good data on this, isn’t there? I was looking 2021 last year, Office for National Statistics, they said women with dependent children are seven times more likely to work part-time than men. It’s a big difference, isn’t it?
ROMI: It is a big difference and it’s often socially imposed onto the women. We’ve done a lot of research into this topic and even when the woman is the higher earner. So let’s say that the gender pay gap doesn’t apply in your family, even then women are more likely to take time off to look after children.
PHILIPPA: Yeah, 15% of mums say they are totally economically inactive because of caring responsibilities.
ROMI: Yes. And it’s not only mums, again, when we’ve looked into the research, it’s mums, its relatives, its ageing parents, the caregiving aspect of our economy is simply unmeasured and uncompensated.
PHILIPPA: Yeah, that’s an interesting point isn’t it? Because we think about kids, don’t we? But it’s the other end of women’s careers as well, isn’t it? When they start looking after elderly relatives, that sort of thing. It’s usually women.
ROMI: Absolutely, and what tends to happen over time is that women participate less in the workforce, and that itself tends to promote the gender pay gap and it becomes a bit of a self-fulfilling prophecy, a negative self-fulfilling prophecy. And it will take quite a lot of action from everyone to get us out of this.
PHILIPPA: I mean, Emilie, do you think other psychological factors are at play here to do with pensions and gender, do you think?
EMILIE: There’s something around financial literacy and financial confidence, and I think women definitely need a boost. We don’t, I mean, we didn’t receive any financial education. It is the same for men and women, but we see a slight financial literacy gap between men and women. And I think it also comes from confidence.
PHILIPPA: Yeah, where do you think that comes from? That’s a societal thing, isn’t it? Women just don’t read about that stuff.
EMILIE: It’s maybe that we don’t, first of all, we don’t talk about money as a society. There’s a lot of shame and fear around tackling personal finances. We don’t learn at school, and then we are confronted with all these big financial decisions, you know, taking a mortgage contributing to a pension, even doing a budget, looking at your numbers, this can be super overwhelming. So we don’t really start this conversation.
And I think for women also, it’s the jargon. And it’s, it’s maybe for everyone, but I think people feel they’ve been a bit patronised also, by the financial services industry. So they can shy away from actually taking this decision, calling a financial advisor, talking about money with their partner. So I think these are a lot of like psychological barriers for everyone to overcome. I think education, better communication, this is helping women get started and have these important conversations.
PHILIPPA: And what do you think Romi, Sam? We do not want to be stereotyping here along the lines of gender attitudes to personal finance. But I mean, would it be fair to say that across the piece, across the board, I think a lot of women are still - it’s hard to understand, as Emilie was saying, they’re kind of walking away from it. It’s easy to not deal with it, isn’t it? Stuff like this?
ROMI: It is. And I think the systems and the way the systems are set up, make it harder for women to be on top of it, frankly, because first of all, if you’re having children, as a woman, you are doing most of the caregiving, and therefore you’re exceptionally busy. And so actually, women have less time to research their finances and get familiar with the jargon. And that’s maybe why Emilie will have seen some of a confidence gap.
Also, the part-time working, I think, tends to split the way that men and women save. So, in our research, we’ve seen that women will save for short-term things such as holidays, or a slightly bigger shop, whereas the man, potentially because of tax incentives as well, will end up putting more money into the pension, into the long-term savings. And then the system and the way that it compounds, what happens is that small differences tend to get compounded over time, because compound interest is what makes your pension grow. So by the time we look at this again in our 50s, those small changes in the beginning, are actually really, really big changes when it comes time to take your money out.
PHILIPPA: Yeah. And that mean, as you all said, it’s hard to look down the road and see what your life is going to look like. And often, you’re imagining you’re in a safe scenario with your pension planning, because you’ve got this thing going on. The guy is paying more, you’re dealing with the short-term holiday budgeting. But what if you get divorced? Or what if you have more children than you imagined? So, all these things can play out very differently from what you expect, can they?
ROMI: Absolutely, and when we see the approach to divorce and asset splitting, oftentimes, the pension is completely ignored. Again, because it’s perceived as a financial product that’s really, really difficult to understand. It has a lot of barriers, and the pension can get completely forgotten about and left behind, even if it’s a huge financial asset.
PHILIPPA: Well, yeah, because it can be bigger than the house, can’t it?
How can we tackle the gender pension gap?
PHILIPPA: So okay, I think we set the scene and we’ve looked at how we got to where we are now with the pension gap. Shall we move on to solutions and how to actually tackle this gap. Now, Romi, would it be fair to say that this is often framed as a problem women should be solving for themselves?
ROMI: I think it is almost always exclusively framed as a problem women should be solving for themselves. And the message I consistently hear from the financial services industry is that women need to do more and frankly, women are already doing so much.
PHILIPPA: Like we’re not already doing the other stuff.
ROMI: Yeah, absolutely and I just don’t think that that’s effective or fair, because placing the burden on the recipient of the system is just not going to work in terms of getting us out of the gender pension mess.
PHILIPPA: And it’s fundamentally wrong, isn’t it? This is a society wide issue that we all need to get involved in in solving.
ROMI: Yes, absolutely. If we could imagine a world where pay was equal, that would be a happier world for all and surely that should be impetus for everyone to play their part, whether it’s government, whether it’s pension providers, whether it’s women, but also importantly, it has to be men.
PHILIPPA: Yeah, Sam.
SAM: What can I do?
PHILIPPA: Well, as we’ve said, we’ll you’re doing some of it already, by taking some paternity leave, but as we said, it is - mostly care falls to women. We know this is a big cause of the pension gap. The government, they did try to tackle this a bit, didn’t they? This thing about women working less time than men, they introduced a thing called Shared Parental Leave. Can you just remind us how that works?
SAM: Yes. So, I used Shared Parental Leave with my first child, where effectively, I nicked a little bit of my wife’s maternity leave. I wasn’t paid for it. I took three months on top of would have been - normally just two weeks.
PHILIPPA: As a sole carer?
SAM: No. So I mean, I think that the idea is that I would have stepped in and she would have gone back to work and that would help her career, and that’s the sort of theory behind it. We actually decided to take it at the same time, because we thought maybe the early stages would actually be harder. But it was a bit of a headache, I mean, even to get it set up, speaking to the HR department, I don’t know. Maybe I was the first man to ever use it in the company.
PHILIPPA: When was this?
SAM: This is in 2018. So, I’ve been around, but I think 3% of men have used it.
PHILIPPA: Numbers are tiny.
SAM: I can’t think of I’ve ever seen an advert anywhere that tells you about it. People don’t talk about it, I don’t think. Even when I had done it, I spoke to people in the company, and they just didn’t know it existed.
PHILIPPA: Yeah, it’s a problem. I think government had high hopes. They were hoping for, I think, 20% take up in the first year. Well, that didn’t happen. I mean, even now. I mean, it’s hard to get a handle on the actual numbers, but it’s somewhere around 3 to 7%, something like that. It’s really, really low.
SAM: Yeah, that’s right. And it’s obviously a financial problem, because in general, women will get paid more while they’re off and men won’t. So, I wasn’t - I was unpaid for the bit above two weeks.
PHILIPPA: And that’s a huge problem, isn’t it? For men taking it up. I mean, most families just can’t afford to do that. And the Statutory Pay is really low isn’t it, that you actually get?
SAM: Yeah, it’s 100 quid a week or something.
PHILIPPA: I mean, that’s not going to pay the rent, is it?
SAM: But that’s the reason most people don’t take it, I think, probably. Apart from not knowing that it exists.
EMILIE: I think it’s very courageous to actually take your paternity leave, because it’s sending a very strong message. You know, you’re going to be out of work, you’re going to come back in a few months’ time, your job is still going to be here and you do the same as women. So well done you.
ROMI: I just don’t think it should fall to Sam to sort of self-sacrifice, because that is what leads to the 2% take up rate, like not many people are going to be as open minded about reducing their income for prolonged period of time. I think what is more effective is probably company policy. So you know at PensionBee, we have equal parental leave, and it’s for six months, because we know that this is a 1, 2, 3, maybe 4-time opportunity in your life. And surely you should have a long-term view on how your team is going to prosper from being able to take that time off, and then come back, hopefully refreshed when your baby is sleeping again.
SAM: I mean, that’s a great point. I mean, that’s what The Telegraph did. So, for my second child, they did introduce a new policy, which was equal parental leave, also six months, on full pay. So, I mean, I don’t know if that’s -
PHILIPPA: Full pay being the key point.
SAM: Full pay being - yeah, exactly. So, you know, if you’re a father now, why wouldn’t you take the full amount? There’s not really - I mean, I think if I hadn’t taken the full amount, my wife would be saying, what’s going on?
PHILIPPA: I think the other thing I’m wondering about, about why dads aren’t taking this up and that’s, I mean, all women know there is a motherhood career penalty to taking time out to be with your kids, whether you have to or you choose to you want to. Whatever the reason, you take big chunks of time out. It doesn’t do a lot for your career advancement with most employers. Guys know this, I think there has been some quite good research on the fact that it’s a big reason why they don’t want to take it. They don’t want to suffer that penalty. What do you reckon?
SAM: I think that’s - yeah, that is definitely the case. I mean, so I work for a newspaper and it’s a very fast pace. People coming and going all the time. There’s lots of change. And some men haven’t taken the full amount and I’m sure that’s because they think “I’m out of the game too long”. You know, what if a job comes up if I’m not seen in the office...
PHILIPPA: I didn’t look committed. All that.
SAM: Yeah, I don’t look committed, exactly.
PHILIPPA: What’s your take on this Romi?
ROMI: I think that in many companies, there is a culture of - if you are seen, you will be promoted. And so of course, men and women will respond to those types of incentives. I think businesses need to demonstrably be showing that that’s not the case. And we’ve certainly had many instances where we have promoted women while they’ve been on maternity leave. And I think that doing those types of things, because they are well deserved, and women should be recognised, regardless of whether they’re having children or not, is the type of way that you set an example and that you change the culture. And hopefully it influences other companies as well.
EMILIE: Maybe I can talk about more the conversation you can have with your partner. So I think when you’re planning for a family, it’s really important to have this conversation around, “Okay, who’s going to take time off and when? Plan a bit for your finances, what’s going to happen? Because very often women do this on their own, and they’re going to look at, “Okay, how much time am I going to be off work? How much will childcare cost?” and they will compare this to their own salary, and they will take a decision and say, “Okay, I’m not going to go back”. So, I think it’s trying to look at joint incomes, and how much you can pay for childcare, and see childcare more as an investment rather than a cost. But I think it’s really important to have these difficult conversations beforehand.
PHILIPPA: Planning. Would everyone agree? Did you do any Sam? You should have done.
SAM: So I’ve got a boy and a girl and I set them both up with - they both got Junior Pensions, Junior ISAs and premium bonds from birth. I mean, this is a strange way of addressing the gap but it does mean they’ll have the same amount of money, if nothing else happens.
PHILIPPA: So at least they start on a level playing field.
SAM: I’m addressing the gap in a very small way, but there is definitely much more you can do. I think you’re right about comparing. Women often will compare their salary to childcare, and say, “Actually, it makes no financial sense for me. I also want to be with my child. So why wouldn’t I just do that?”
PHILIPPA: Well, yeah, I mean, that is a key point, isn’t it? Because obviously women, they need to work. But a lot of women, they want to take time out to be with their children. It’s not that they’re forced into it, because no one else can do it. They want to, but quite reasonably, they want a decent pension, too. So how do we reconcile those two objectives?
ROMI: How do we reconcile that? I think that everyone should be free to live as they want, and to look after their children as they want to. And so of course, they’re going to be, you know, mothers and fathers who want to do the lion’s share. I think for women in particular, the most important thing, while you are off is to keep the pension contributions going. And because again, those small differences, they seem insignificant at the time, they become big problems later on, because of the way that compound interest works. I think that once women return to work, having been out of the workforce, there is often a temptation to go back part-time, which can then impact your pension contribution. Again, during that period of time, the pension contributions in the family should be shared.
EMILIE: Also on the pension, so when I left finance, studied building businesses, I didn’t have any income. And actually, I had this conversation with my partner, and I had my first son, and he actually paid into my pension. So, this actually works. It’s amazing, but in practice, it’s a very hard conversation to have sometimes for women, because if you never talk about money, if you don’t do your budgeting together, I mean, in some couples, you don’t even know how much the other is actually earning. You see that very often. It’s how do you actually start these conversations?
SAM: I wonder if there’s a role here for the government or the state really, because when you’re having a baby, there’s lots of - you have lots of contact points, and you’re given quite a lot of information. So, when you get the bounty packs, you’re in a hospital bed and the babies just been born. They’d give you all these documents that tell you “Here’s a free nappy, here’s some nappy cream”. I mean, they could have a thing that says, “What’s going on with your pension while you’re off?” And that would even just make you think a bit more targeted.
ROMI: Well, the anti-natal class seems a perfect opportunity to do that. I feel like right after childbirth. I’m not going to be as receptive to conversations about my pension.
PHILIPPA: I’m thinking earlier. A little bit before! But even GP surgeries, do you not think? Because when you actually discover you’re pregnant, isn’t that the moment because I mean, we’re all quite sane at the outset and able to take on new information. And you have time then, you’ve got nine months, whatever it is six, nine months to put some stuff in tray, maybe have those conversations you’ve been talking about Emilie, and think, what do we need to set up here? Because one way or another, we’re gonna take an income hit.
SAM: Doesn’t necessarily have to be the government. A pension company sends you an annual statement, normally, your pension is worth £20,000. It might well be worth a million by the time you retire. It could also say, are you off at the moment, caring for someone? Do you know this could affect the size of your pension?
ROMI: I think that’s another excellent idea. But it has to come from many, many places. But I think we want impact quickly, so I do think there has to be more done by government, especially around childcare and childcare costs. It’s one of the few areas and one of the few benefits, if you will, that have to be paid on a post-tax basis. So, when you pay into your pension, for example, you pay an on a pre-tax basis. You can have it deducted directly from your salary and then it’s something that’s not taxed by HMRC. But if you’re paying for childcare, you have to pay after you’ve paid tax, and therefore the calculation for women, as Emilie was saying, ultimately becomes, “Well, why would I pay another person to do this and reduce my salary effectively to zero - for many women - when I could do it myself?” And that, of course, comes with the long-term consequences.
PHILIPPA: Since we’re getting into numbers Romi, shall we? I know you’ve been doing some gender pension gap modelling, haven’t you? Do you want to talk us through some of the numbers because they are startling?
ROMI: Yeah, absolutely. So last summer, we modelled various policy interventions, and found that if men and women were to work the same hours at equal pay, with both working fewer hours in the beginning to share childcare, and both returning to full time work after a period of time, then the gender pension gap would effectively be eliminated. And that would enable women to increase their pots by more than £100,000. And men’s pots would only decrease by about £33,000. But overall, what that means is that the couple together will be about £70,000 pounds better off. And we tried looking at this in various different ways. We tried to see well, what if women were just paid equally? Right? Would that close things off? But no, it wouldn’t, because they’d still be working less. And so the only way to make things completely equal is if we do the paid and the unpaid work at equal rates.
PHILIPPA: I mean, the numbers are compelling, aren’t they? And this fairer approach to sharing care responsibilities. Clearly, it can make a huge difference to women’s pensions. We touched on this, but employers pay a big part here, don’t they? So, I’m wondering Romi, what would you like to see businesses, CEO’s like you, doing to close the pension gap?
ROMI: I think every business should be offering equal paid parental leave to anyone who has a child. That’s the single biggest intervention that you can make at the child’s bearing moment. Over time, I would like to see business, together with government, provide better childcare opportunities for all parents, because this is a problem that affects virtually everybody. The gender pension gap numbers show that in regions that have lower economic prosperity, overall, the gender pension gap is worse. Up to 60% in some areas, and so levelling up essentially, must also incorporate action on the gender pension gap.
EMILIE: So, I think for me, there’s maybe some efforts around communication also. Like, people are putting a lot of money into their pensions, but a lot of them aren’t necessarily aware of how much money they’re actually contributing into their pensions, how it’s invested, how much money they expect in retirement. So very simple tools like retirement calculators are already a good way to start, because most people are not going to have a financial advisor. A lot of women are telling me, you know, “I’m opting out of my pension because I don’t have enough disposable income”. So, I think, a bit more education.
PHILIPPA: This is knowledge again, isn’t it? It’s just that idea. It’s very, very easy not to get involved in what’s going on with your pension when you’re working, when you’re busy and there’s stuff going on and it all seems complicated.
EMILIE: Yeah, it’s very easy to actually not think about it. But I think it’s this moment where you’re like, “Okay, I’m going to take one hour, I’m going to set it up, I understand how it works and then I’m done. I know how much money I’m going to have when I retire”.
SAM: I actually think, kind of relying on employers is sort of missing the point a little bit. Lots of people will - one, lots of people are self-employed. Millions of people. So, there is no employer. Two, there are lots of tiny little companies who just don’t have them. They might not have an HR person; they might not have anyone who thinks about this stuff. So, I think like the rules of enrolment, the government probably needs to step in.
One actionable tip to take today
PHILIPPA: Before I let you go, we’d like to wrap up the podcast with tips from everyone. Things listeners can do for themselves right now. So specifically thinking about this gender pension gap, Emilie, how about you go first?
EMILIE: So, I would also think about, “Okay, do I have previous pensions sitting somewhere?” And maybe start with this, are they invested? Where are they? Who are my providers? Where are my login details? And that’s already a really good starting point.
SAM: So, mine would be to dads, and it would be not to think of yourself just as someone who earns some money that gets spent on various things for your kids. That you, your time is much more valuable. So, take the time, because the time is the most important thing. Most people don’t have too many kids.
PHILIPPA: Yeah, Romi?
ROMI: I think it’s important to bear in mind what the government does do, as well as what the government doesn’t yet do. And what they do do is provide the state pension, so you should do everything you can to make sure you get the full one. It’s currently about £10,000 pounds. So it will add a meaningful chunk to your income in any given year , and the way to make sure you get the full amount is to have 35 years of National Insurance credits and so that means about 35 years of working, but if you are not working, if you are a stay at home parent, then you should register for Child Benefit, because that will help you protect your record, even if you are not in work for a prolonged period of time.
PHILIPPA: OK, we’re done. Thanks everyone! And if you’ve been listening to this and you want to take a closer look at some of the research we’ve mentioned, you’ll find links in the episode show notes. A final reminder that anything discussed on the podcast should not be regarded as financial advice and, as always with investments, your capital is at risk. Thanks for listening. You know we love hearing your feedback so don’t hold back - good or bad. And if you have any questions about your own pension, get in touch with the PensionBee team. You can email: [email protected] or use the Twitter handle @pensionbee. We’ll be back next month. In the meantime, keep saving and stay pension confident!
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.