- More employers could introduce gender inclusive paid parental leave to prevent and try to close gender pension gaps.
- The Pensions (Extension of Automatic-Enrolment) (No. 2) Bill will remove the lower earnings limit, enabling more employees to pay into a pension.
- In order to help close the pensions participation gap, more education on schemes is needed.
Women need to work and save for an extra 19 years on average to retire with the same amount of money in their pension savings as a man, according to Now: Pensions and Pensions Policy Institute‘s January 2024 gender pension gap report. By the time the average woman reaches retirement age, she will have saved a pension pot worth £69,000, which is £136,000 less than the average man, who will have saved £205,000.
The gender pensions gap stems from men historically being the main wage earners, while women typically take periods of maternity leave or move to part-time hours for childcare. As a result of paying less into a pension than their male counterparts, the discrepancy appears.
The Pensions (Extension of Automatic-Enrolment) (No. 2) Bill, which received Royal Assent in September 2023, will remove the lower earnings limit that currently stands at £192 a week or £833 a month, and will assist those who currently do not earn enough to pass the automatic-enrolment threshold. In addition, there are other ways for employers to support staff who have paid less in pension contributions at certain periods or throughout their careers.
Financial and pensions education
The gender pensions gap is also a result of the overrepresentation of women in part-time employment, which has implications for the amount they are able to save into their pensions. Stretches of inactivity in part-time sectors, such as hospitality, caused by the pandemic additionally exacerbated the gap.
John Mullally, group risk and health consultant at Cartwright, says: “The gender pensions gap is linked with the gender pay gap, as the amount an individual earns affects what they can contribute to a pension. Greater equality and transparency across public and private sector pay will allow for the gender pensions gap to reduce.”
Factors such as financial behaviours, employee engagement, and the level of financial education an employee receives have also drive the pensions gap. Education on pensions schemes, and who is eligible to pay into these, can not only reduce the participation gap but also help to close the gender pensions gap in the long run.
Mark Stopard, head of proposition development at Zedra, says: “The first step to improve the gap is to monitor and manage it. Targeted action is likely to differ from each employer and be a combination of culture and specific support measures. An example might be engagement activity aimed at part-time workers, explaining the benefit of joining the pension scheme and the employer’s contribution,”
Employers should consider their available tools and use targeted employee communications strategies on pension management and retirement planning.
Andreas Hunter, employee benefits consulting lead at Buck, explains: “Employers cannot control all influences, but with improved financial education and more targeted communications strategies that equip employees to make informed planning decisions for their retirement, they can make a difference.”
Parental leave support
Royal London’s January 2024 Tackling the gender pension and wealth gap report found that mothers can miss out on £92,000 of pension savings by working part-time until their child reaches secondary school, and £183,000 if they leave work altogether for the same period. In order to combat this and prevent pension gaps from worsening, employers can offer gender inclusive paid parental leave to help employees share caring responsibilities from the beginning.
Becky O’Connor, director of public affairs at PensionBee, explains: “Employers typically pay more generous maternity pay than paternity pay. This means that when couples are deciding who should stay at home, the household income will usually be higher if the mother stays at home and takes the higher maternity pay. These factors can have a huge impact on the size of a woman’s eventual pension pot.”
By giving women more opportunity to return to work earlier through practical solutions to working practice, they can improve their pension contributions and the gender pensions gap as a result.
“More employers now offer equal maternity and paternity pay, which allows women to split their maternity leave with their partner and return to the workplace earlier,” says Cartwright’s Mullally. “Flexible and home working are becoming more common, enabling women who may have in the past been the person who takes time off to work more hours, earn more and put aside an increased pension contribution.”
There is more upcoming government legislation that will impact the gender pension gap. From April, eligible working parents of two-year-olds will be able to access 15 hours of childcare support, and from September, this will be available for children aged between nine months and three years old. From September 2025, eligible working parents of children under the age of five will be entitled to 30-hours of childcare a week.
“With these measures in place, there should be less of an imbalance between who takes the leave in couples,” says O’Connor. “This should be reflected in women’s pay, with earning potential becoming more equal. This should, in turn, feed through to more equal pensions.”
More focus from employers is the key to reduce and close the gender pensions gap. Whether by encouraging higher workplace contributions or through financial education, there are ways in which employers can work towards achieving this goal.