For the first time, in June 2023, the government published official statistics defining and measuring the gender pensions gap in private pensions.
With women more likely than men to have disrupted work patterns, career gaps or work part-time, the UK has an 8.3% gender pay gap (as at April 2022) for full time employees.1 But while the pay gap has been a focal point of conversation in recent years, the resulting pensions gap has shared less of the headlines.
Given the impact the pensions gap could have on retirement living standards for women, having a measurable statistic is a positive first step towards shaping future change. Here I’ll outline:
- How the government has measured and defined the gender pensions gap
- How big the gender pensions gap is
- What could happen next
- The role that advisers could play in closing the gap
Unless otherwise stated, the facts and figures presented are taken from the Department for Work and Pensions, ‘The Gender Pensions Gap in Private Pensions’ published in June 2023.2
1. How the gender pensions gap is measured
The government used private pension wealth data to measure the gender pensions gap (from here out referred to as the GPeG). This came from the Wealth and Assets Survey, and the Annual Survey of Hours and Earnings (the main source for workplace pension participation and contributions).3 The data includes workplace and personal pensions but excludes the State Pension and individuals without any pension savings. When referring to the GPeG around normal minimum pension age, a five-year age band was used to establish a balance between granularity and a large enough sample size.
Only uncrystallised wealth was considered, as the government wanted to look at the gap in how men and women build their pensions wealth, rather than how and when they access their pensions. Considering all pensions, both in accumulation and decumulation (including the State pension) could affect the GPeG.
Based on this information, the government has defined the GPeG as:
‘the percentage difference in uncrystallised non-zero median private pension wealth between men and women around the normal minimum pension age (currently 55)’.
Using this data and methodology, the government has been able to measure the gap over time, since 2006.
2. How big is the gender pensions gap?
According to the most recent data (2018 to 2020), the government reports a GPeG of 35% between men and women around the normal minimum pension age (NMPA).
However, circumstances such as age, pension type and auto-enrolment status show varying levels of discrepancy between pension savings of genders.
The gender pensions gap by age
The size of the GPeG varies by age and follows a similar trajectory to the gender pay gap. It’s smallest for those aged 35-39 (10%) and increases to 47% for those aged 45-49, before decreasing again in the later years of working life. This clearly shows the impact of women taking time out of the workplace, including working part-time, to raise their children.
The gender pensions gap by scheme type
When considering only certain types of pension scheme, the gap is also significant. It stretches to 44% for those around NMPA who only have defined benefit (DB) pensions, and to 60% for those with only defined contribution (DC) pensions. The discrepancy between DC and DB pensions could be down to multiple factors. For example, the impact of working patterns, career choice and the gender pay gap.
The gender pensions gap by those auto-enrolled into a pension scheme
The GPeG closes slightly when looking only at those eligible for automatic enrolment – narrowing to 32%.
The imbalance is despite the pension participation rate for eligible women being slightly higher than men, at 89% compared with 87%. As we’ve learned from the gender pay gap, men tend to earn more and benefit from higher pension contributions. In 2021 the total annual contributions paid into workplace pensions by auto-enrolled women was £52 billion, compared with £62.6 billion for men, giving a 17% contribution gap. In the private sector, median auto-enrolled male employees contributed £2,010 annually, compared with females at £1,500.
Why auto-enrolment is fuelling the gender pensions gap
Despite auto-enrolment narrowly closing the gap for those eligible, the current legislation is fuelling a wider GPeG overall. More women than men don’t meet the auto-enrolment earnings trigger of £10,000 per annum in a single job, as they’re more likely to work part-time to fit in with their families. Their exclusion from auto-enrolment means missing out on employer contributions and government tax relief, which can make a real difference to their financial futures.
The good news is that the government is legislating to bring more people into auto-enrolment by reducing the minimum age from 22 to 18. It will also be removing the lower earnings limit of £6,240, meaning pension contributions will be calculated from the first pound earned. This will allow earners to save more and benefit from a higher employer pension contribution. And, to an extent, help to close the GPeG.
The gender pensions gap has been slowly closing
In other good news, the numbers show a slight decrease in the GPeG since 2006 – the earliest date that the government has been able to use their methodology from. In 2006, the gap was 42%. This demonstrates the change in employment patterns and pension provision, such as more women working longer and the introduction of auto-enrolment in 2012. The government intends to continue to measure the GPeG to track any changes.
3. So, what happens next?
Women are reaching retirement with around one-third less saved in their pensions compared with men. Once they hit their 40s, their savings start to fall significantly below their male counterparts. This is concerning as women tend to live longer than men, so need to save more rather than less.
The publication of the official GPeG is a vital step in highlighting these inequalities. It’s put the topic firmly on the government’s agenda and provides a way to monitor progress made and potentially introduce new policy interventions.
The government’s childcare reforms, if successful, could help more women to remain in the workforce and continue to contribute to their pensions. Along with the auto-enrolment reforms, this could help to close the gap. The gender pay gap is already narrowing, but it’s likely to be another 20 to 30 years before we’d see the impact trickle down to the pensions gap.
It's safe to say that the GPeG will be with us for some time to come. In the meantime, pension providers, employers and adviser firms can all play a part in encouraging more positive pension outcomes for women.
4. How can advisers support women in closing the gap?
The GPeG is a symptom of employment practices and policies, and social norms as well as individual‘s personal choices. This means there’s a limit that pension policy alone can do to help close the gap. Here are a few actions that you could consider to support your clients.
1. Raise awareness of the gender pensions gap
Female clients, and their partners, must first acknowledge and understand the impact of the GPeG on their retirement savings before they can act on it. By relating it to their circumstances, your clients might be more receptive to making proactive choices.
You could help your clients understand the impact of taking a career break and/or pausing their pension contributions. Or how returning to work part-time may affect their future retirement income. Explain the actions they could take to make up for any pension pauses – such as increasing their pension contributions after, and potentially before, any career breaks.
2. Eliminate jargon and empower pension confidence
A DWP report from January 2023 outlined barriers to member engagement with workplace pensions. It substantiated the perception that people have low knowledge about their pensions. It also showed that people believed pensions would be difficult to understand and filled with jargon.
Combined, these factors can contribute to a lack of pension confidence. Make sure communications with your clients are always put in the simplest terms, jargon-free and in plain English with clear actions.
3. Work with couples to discuss their options if circumstances change
Help couples understand their options when it comes to starting a family or experiencing a change in circumstances such as a redundancy – and what this means for their financial futures. For example, use case studies to show the potential benefits to pension saving of shared parental leave. Or visualise their pension growth if one partner paid into the other’s pension to help support any non-working or lower earning periods.
4. Partner with employers to target employee financial education
Employers also have an important role in helping to close the GPeG. If you work with employers, you can help them by encouraging them to embed financial education and awareness of the gender pensions gap into their employee support.
It’s time to close the gap in pensions saving
The government’s new measurement is a pivotal step in raising awareness of the gender pensions gap. But awareness is only one part of the story, and change needs to happen. It will be interesting to see how the story evolves, if and when auto-enrolment legislation changes to widen the net for lower earners and younger people, helping them to save more for longer. As the gender pay gap continues to narrow, hopefully the gender pensions gap will follow suit.
A need for clear, accessible education and guidance is fundamental to empower women to take control of their financial futures. Something that advisers can continue to play their part in.