Need to know:
- While the gender pay gap is well understood, another income gap is much less publicised: the extremely stark gender pensions gap. On average, women are retiring on a fraction of the amount men accumulate during their working lives.
- The Covid-19 pandemic may worsen an already-widening gap. In difficult times, long-term issues like pensions may get pushed down the agenda of the government and employers alike.
- Finding out the scale of the problem, helping people to get into the savings habit and supporting women in the workplace are three important steps employers can take.
The government took an important step towards gender equality when it made it mandatory for organisations with more than 250 employees to disclose their gender pay gaps. But a much less publicised gap continues to create stark problems for women in later life: the gap in the amount they are saving for retirement.
In fact, research shows that the gender pensions gap is getting worse, not better. The Covid-19 pandemic could further exacerbate the issue. So what can employers do to help women?
The scale of the problem
In their early 60s, women would have saved approximately £51,000, while men would have saved £157,000, according to Understanding the pensions gap, a July 2019 report by the Pensions Policy Institute.
The gender pensions gap and the gender pay gap are symbiotic. Through auto-enrolment, an employee saves a percentage of their salary into a pension. Therefore, the more a woman earns, the more she will save into her pension. Since much more attention is being paid to closing the gender pay gap, one might expect the gender pensions gap to also be narrowing.
However, the gender pensions gap is getting worse. The gap between the pension earnings of women and men was 40.3% in 2018-19, according to Achieving gender equality in pensions research by trade union Prospect in September 2020. This is an increase of 0.4% from the previous year.
What is causing the gap?
There are many causes of the gap, from the practical to the behavioural. Women’s working lives have traditionally looked very different to men’s. In the past, women were less likely to be employed than men because they took on more caring responsibilities, like raising a family or looking after elderly parents. Earning less over the course of a working life results in a lower pension. Although there is greater parity in the workplace today, women are still more likely to take time out to raise children and to be employed in part-time work, which they might juggle with other responsibilities.
While in many ways, women are catching up with men, financially families can still get trapped in traditional gender roles. Sue Pemberton, head of employer services at consultancy Premier Pensions, says: “Childcare is often paid for by the women’s wage even though they often earn less.”
Daniela Silcock, head of policy research at the Pensions Policy Institute, adds: “There are also issues with how money is used within families. Often in heterosexual families, men are seen as taking care of more long-term financial issues such as buying a house and investing in a pension, whereas women’s money tends to go towards household goods. So, there may be a sense that women don’t need to contribute to a pension because it is being taken care of. This is something that varies by age; in older couples, the differences are likely to be starker.”
Divorce is a final factor which can contribute to the gap, says Silcock. “During divorce, women are more likely to give up their claim to their husband’s pension. There is a sense that in families with these gendered roles around finances, women are more vulnerable during a divorce and can be taken advantage of. They might not always understand the implications of: ‘I’ll take the house, you take the pension'.”
It is well documented that women tend to be more risk-averse than men when it comes to investing, as consumer research conducted by pension provider Aegon between March and July 2020 shows. Kate Smith, head of pensions at Aegon, explains: “Between March and July, when the big shock falls in the stock market happened, 47% of men compared to 31% of women said they considered this to be the right time to invest; men saw the opportunity.”
The impact of Covid-19
The Covid-19 pandemic could make matters worse. Another lockdown could ultimately worsen the pensions gap. With childcare stripped away, women who earn less than men may decide to prioritise the higher earner’s career. They may have no choice but to ask to be furloughed to look after their children.
“The industries that have been hit harder are the ones women tend to be in: hospitality and leisure," says Smith. "So, women have been disproportionately affected.”
These industries are often characterised by part-time work. “So they are not always financially rewarding industries with a lot of security,” adds Smith
In these difficult times, struggling employers may choose to prioritise other areas of benefits which feel more immediate. “Employers are struggling at the moment, even the ones that are doing relatively okay," says Pemberton. "They don’t want to be spending money on employee benefits right now. The benefits they are focusing on tend to be wellbeing solutions; they have a lot of people working very hard, distanced from their support networks. Pensions probably aren’t the highest priority for them right now.”
Because the government has had to refocus its efforts on combating the pandemic, policy initiatives with less immediacy may be put on hold, as may proposals that are seen as onerous for employers.
For instance, the 2017 Auto-Enrolment Review recommended that people should be auto-enrolled from the age of 18, instead of the current age of 22 and that contributions should start from the first pound of earnings.
“It is possible that because of Covid-19, those reforms might not come in during the mid-2020s as promised, so that would have a major impact on women who are more likely to be earning less and, therefore, receiving less,” says Silcock.
Master trust Now: Pensions is campaigning to make changes to auto-enrolment to close the gap. At the moment, people are only auto-enrolled when their annual earnings from one employer exceed £10,000. This disenfranchises women who may earn over £10k in several part-time jobs, says Samantha Gould, senior communications manager at NOW: Pensions.
“If we were to remove the £10,000 earnings threshold, then an additional 1.9 million women would be brought into workplace saving, and 300,000 of those would be single mothers,” she explains.
What can employers do?
Arguably, the main responsibility for closing the gap lies with the government. But there are important steps employers can take to help.
First and foremost, becoming more accommodating places to work will help to encourage women back into the workplace, boosting their earnings and pension savings. Sue Fern, senior deputy general secretary of Prospect, says: “This is one of the positive things to come from recent months: the realisation that people can work flexibly and remotely and be trusted to get the job done.”
Rob Atkins, head of workplace savings at Howden Employee Benefits and Wellbeing adds: “The first step is for employers to identify pay gaps within their organisation and also recognise that these can have a significant knock-on effect leading to pensions and benefit gaps too. Once any gaps have been identified, employers can take positive action to address them.’’
The legislation which requires employers to publish their gender pay gaps has been widely lauded. Simply having to disclose the figure means employers feel obligated to explain the steps they are taking to close the gap. Prospect recommends that the Department for Work and Pensions (DWP) should be given a statutory requirement to report annually on the gender pensions gap in its 2020 report.
Prospect also recommends an increase in employer auto-enrolment contributions in its report. But how likely is this to happen in the current environment? “It is a perfectly reasonable ask because the average employer contribution to a [defined contribution] (DC) pension scheme is pretty low, roundabout 4% on average,” says Fern. “Clearly some employers are much better than that and some are worse, but 4% is nowhere near enough to get to a decent level of income in retirement.
“Many businesses have moved from [defined benefit] DB to DC, clearly in order to save money, but they could make increases in their DC schemes that wouldn’t break the bank and would make all the difference to individuals.”
Early education on the impact of contribution gaps, when a woman takes maternity leave, for example, can help families to make financial plans with a full set of information at their disposal, says Atkins. Employers could also consider maintaining their contributions beyond the statutory requirements, he adds. “For example, if a parent takes two years off, the employer could maintain contributions for an extended fixed period.”
Organisations can also signpost the fact that women can opt into their workplace pension, even if they earn less than £10,000 a year. Employers could even make a voluntary contribution for people in that situation.
Constantly revisiting the issues which can worsen the gender pensions gap can also help. Aegon has a specific workstream, Women at Aegon, which actively looks at how the organisation can help women to achieve their goals, says Smith. “It needs to be an area of activity among employers, rather than just a tick box.”
As Fern concludes: “Clearly there are a lot of employers that are facing hard times at the moment but as we come out of this crisis there is going to be a competition for skilled labour. At that point, employers are going to have to think about their equality and diversity policies and how they attract more women to work for them. That means they are going to have to address, in very practical terms, what their employment policies are. The gender pay gap and the gender pensions gap therefore, their flexible working arrangements and how child friendly they are. It shouldn’t be seen as a cost, it should be seen as part of an overall employee benefits package.”
