Pension Pillar

THE GENDER PENSION GAP IS EVERYONE’S PROBLEM TO SOLVE

by Dale Critchley Policy Manager Aviva

International Women’s Day was used as a real positive opportunity to highlight some of the pressing financial issues associated with gender. Within the world of pensions, we have our own issue, the gender pension gap. A gap between the pension entitlement of men and women which exceeds the gender pay gap by some margin.

To understand the gender pension gap, we have to start with the gender pay gap - the difference between the average earnings of men and women. The good news from the Office for National Statistics (ONS) is that the gender pay gap is reducing. The gap between men and women working full-time is down to around 1% for people aged under 40. The bad news is that the propensity for women to work part-time and in roles that tend to offer a lower-than-average rate of pay means that the overall pay gap still stands at 15.5%. The full-time gender pay gap for over 40s - perhaps fuelled by the cohort of women returning to full-time work when children are older - stands at over 11%.

Once we understand that the gender pay gap is the difference in hourly rates of pay, it doesn’t come as a surprise that the pensions gap is bigger. The UK’s private pension system is greatly aligned to paid work. Women are more likely to work fewer paid - and therefore pensionable - hours than men, due to part-time hours and career breaks, often to assume the lead share of caring responsibilities. Pension entitlement is hit with a double whammy. In defined benefit pensions lower hourly pay is multiplied by reduced years of service. In defined contribution schemes lower pay per hour, multiplied by a lower number of hours means the difference in pensionable pay can far exceed the gender pay gap.

So, what’s the answer? It’s been suggested that women could choose to work longer or pay more into their pension to make up for contribution gaps created through caring. These are solutions, but ones which are far from ideal given they seek to address the symptoms rather than challenging the current system and root causes. have the information they need to make informed decisions about the effect those decisions might have on their pension, not just their take home pay. An employee who switches to 3 days a week for 6 years can see their DC pension reduce by 10%. A career break can mean a bigger hit to pension entitlement - and entitlement to state pension can also be hit if child benefit isn’t claimed.

Employers can help with scheme design. ONS statistics on employer pension contributions show that overall, women who are members of pension schemes benefit from higher employer percentage pension contributions than men; a product of a greater number of women working in the public sector. But in the private sector, the proportion of employers paying least - less than 4% of earnings - is higher for women (54%) than men (49%). Calculating contributions based on basic pay would boost the contributions for women working part-time, as they currently see the greatest proportion of their pay disregarded in the calculation of qualifying earnings.

Another change an employer can implement is the adoption of salary sacrifice for pension contributions. This results in pension contributions being maintained at pre-maternity levels throughout paid maternity leave. It would replace the current situation in which employee contributions fall to £1.56 per week in an automatic enrolment minimum scheme.

However, the most effective way to close the gender pension gap sits outside of the pension scheme. Changes to the structure of parental leave benefits and more affordable childcare sit within the gift of both employers and government. This could help balance caring for children and a rewarding career by enabling caring responsibility to be shared. Once back to work, a family-friendly culture is essential to avoid carers being held back. The rise of remote working in a post pandemic world is surely an opportunity to help encourage a more flexible work-life balance for all parents.

These solutions are far from exhaustive and it’s clear they don’t lie in the hands of individuals, schemes, employers, or government alone - they sit with everyone. And if we’re to make significant progress each needs to play their part.