Despite UK’s evident auto-enrolment success, there is a massive 60% defined contribution pension gap, according to Aon. This is a shocking figure, which is more than twice the already scandalous gender pay gap. Even among older workers, the gap is still 35% at 56 for the last survivors of the defined benefit regime, according to research from the Department for Work and Pensions.
Part of the reason is still pay. The reality is women are still not on an equal footing with men. Fewer women are in top jobs. ”Women are still more likely to be in lower paid sectors, in part-time roles, or have time away from the workplace for caring responsibilities. This has an obvious impact on how much can be saved for retirement.,” notes Royal London, quoting CMI.
Unequal retirement income does not yet make front page news. Penny Cogher, partner at Irwin Mitchell, explains. “’Fair pensions for all’ doesn’t quite have the same ring as ‘equal pay for equal work’,” she points out. “We have had the Equal Pay Act since 1976 and pensions have been agreed as a form of deferred pay since the Barber judgment in May 1990 and we have had the Equality Act since 2010. A man and women start and stay in the same role until retirement, they will have the same pension.”
But life intervenes. “From childcare perspective, not only are women paid less when they are working, they also suffer the triple whammy of reduced pay during maternity leave, lower pay on returning to work after having children if they move to part-time working and increased expenses, primarily childcare,” Cogher concludes.
Psychology plays its part too – human beings are not designed to think about poverty 50 years but the more immediate problems of today – prospective mums (and dads too) may focus more on prams than pensions on the arrival of a new baby.
Then there is life expectancy. In the new DC world, women have smaller pension pots but have to eke them out for a longer period as they typically live around three years longer than men.
Pension scheme design may drive some of the imbalance with different contribution rates for different groups of members. Karina Klimaszewski, partner at Aon, asks: “How easy is it for your employees to pay more if they want to?“ There is also the issue of financial awareness. Klimaszewski says: “How can employees choose to contribute more to close the gap if they don’t know it exists? This should drive the provision of financial education sessions, communications to those groups most at risk or re-thinking the way members are communicated to.”
One AE reform promised by the government is the removal of the lower qualifying earnings threshold. Currently, Emma Douglas, director of workplace savings and retirement at Aviva, notes: “Average earnings for part-time work is £6,922, so women are less likely to meet the £10,000 AE eligibility criteria. The change has the potential for the biggest impact on closing the gender pension gap. It would mean women in a pension scheme would get a contribution from the first pound they earn.”
The gender pension gap widen significantly from the age of 35, which is a pivotal age for career choices and child bearing ambitions. Significantly more women than men are in part-time employment, at 38% of women compared to 14% of men.
Douglas points out: “A person earning £30,000 opting to reduce their hours by 40% would see their pay reduce by 40%. Because of the lower qualifying earnings threshold under auto-enrolment, their pension contributions would reduce to around 50% of their full-time value. A worker earning £20,000 would see their pension contributions reduce by over 58%.”
Not all is doom and gloom
Not all is doom and gloom Klimaszewski, stresses. “A lot has changed in the last 10 years on wider policies such as flexible working and shared parental leave. My own experience having recently returned from maternity was that many were still not using some of these benefits. Employers need to support and encourage employees to use these (where affordable),” she says.
A Barnett Waddingham report notes: “As the old adage goes, a rising tide lifts all boats. Over the last 10 years, the introduction of AE in the UK has overhauled the pension savings landscape. Women now outperform men when it comes to participation rates among full-time eligible employees. In 2021 participation rates for workplace pensions in the UK stood at 91% for eligible female employees and 89% for male employees (more than double when compared with 2011).”
Sadly, the total annual contribution into workplace pensions for AE eligible female and male employees in 2021 was £52.0 billion and £62.6 billion, giving a contribution gap of 17%,. Perhaps, Baroness Ros Altmann is right: “The real challenge is more about ensuring state pension provision is equalised.”
Few workers, let alone HR professionals, have any idea of the huge gulf in the pensions gender pay. Yet this ignorance will become ever more problematic. It is far from just a societal, government or fiscal issue. Employers must take responsibility too for some of heavy lifting to create a fairer society that works for everyone.
Top 10 gender gap pension boosters tips
- Shine a light on your own workforce. HR personnel are all up to speed on gender pay, but this is not so on the pensions gender pay gap. The fact that it is hard to measure is no excuse. Do the best you can and know the drivers: salary, contribution rates career breaks. Are demographic/ethnic sub groups left behind? Then consider what you can afford.
- Pay and conditions. How do promotions, hires and exits vary by gender? Watch out for “occupational segregation” ie 100% low-paid women secretaries and 100% high-earning IT staff. Allow flexible and remote working where practical, from day one. Switch to four-day weeks for everyone. Perhaps try it out in the summer months, as more women can manage four days full time than five. Provide subsidised nurseries on site or childcare vouchers if face-to-face working is mandatory. Align maternity and paternity pay develop HR policies that are empathetic (ie menopause) and planned and unexpected care needs. Go beyond the statutory minimum outlined in the Carer’s Leave Act.
- Educate, educate, educate. Make sure your workers understand the hit to retirement income if they have career breaks or go part time, especially new parents and carers. You could even put up notices to publicise free financial seminars, digital or face to face. Offer employee assistance programmes.
- Default design. Is your default fit for purpose? Traditional defaults are often skewed against women. Change the default for returners with a higher contribution rate to make up shortfalls in pension saving as soon as possible, but keep the option of opting for lower contributions.
- Swatch to auto-pilot. Introduce auto escalation for returners .Make them have to choose to opt out than opt in and educate, educate at the same time.
- It takes two to tangle. Why not invite a “significant other” to attend any financial seminars for free or at a reduced ates an employee benefit? It may make more sense for higher earning women to return full time to work while a lower paid male partner goes e parttime time to do the caring – this could boost the pay and pensions of both so both need advice together.
- Relax pension rules. Allow the working partner to maintain full (not reduced) maternity pay level pension contributions.
- Power up with tech. Point your people to free digital tools from banks, insurers andIFAs.
- Don’t ignore low earners. Encourage employees who earn less than £10,000 per year to join the company pension scheme.(Most part timer may not be on the breadline and could afford to join in.
- Something for nothing. Make your people aware of free help from the government: Pension Tracing Service, Money and Pensions Service (MaPS), Money Helper, and Pension Wise. Go one step further if you can. Provide free independent financial advice or introduce trusted advisers for employees at three or four key points in their careers (perhaps on joining, buying a home, maternity leave, at 50 or redundancy and at retirement.
Tips inspired by research/podcasts from Aon, Aviva, Barnett Waddingham, Irwin Mitchell and LCP, Mercer, Royal London, PensionBee, Willis Towers Watson