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Two fifths of working women face pension poverty, onus to fix it ‘lies with employers and state’

by Claire Churchard
15/11/2024
Mature female employee, women, menopause
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Women retire with £100,000 less than men, on average, while two fifths of women (42 percent) are currently on track to face poverty in retirement compared to just over a third (35 percent) of men.

This was a key finding of a report that has been tracking the gender pension gap for two decades.

The Women and Retirement Report from Scottish Widows found that the gender pension gap has narrowed to 30 percent but the UK is still 20 years away from closing it.

ONS data shows the overall gender pension gap has narrowed from 52 percent to 33 percent between women and men aged 50 to 64 since 2008. But these women are still likely to retire with private pension pots that are 33 percent smaller than men’s on average.

Progress with auto enrolment
In the past two decades, there has been progress in narrowing the gender pension gap, which has been driven by policy implementations such as auto enrolment, a rise in the number of working women, a narrowing of the gender wage gap and a gradual change in attitudes towards women’s roles. 

However, the report found that the average woman is projected to receive £12,000 a year of total income during retirement, after paying for income tax and any expected housing expenses, compared to £17,000 for the average man. 

This large difference in retirement payments means that 42 percent of women fall short of the minimum retirement standards of £14,400 a year for a single person, compared to (35 percent) of men. These standards are set by the Pensions and Lifetime Savings Association (PLSA), which puts the minimum retirement standard for a couple at £22,400 a year to cover the basics.

Comfortable retirement?
Women are also less likely to achieve a comfortable retirement lifestyle (28 percent) than men (35 percent), which the PLSA says will require a retirement fund of £43,100 a year for single individuals and £59,000 for couples.

The Women and Retirement Report findings show that 56 percent of women are on track to receive retirement income from a private pension, compared to 68 percent of men. And fewer women (49 percent) are projected to collect a retirement income from long term savings than men (61 percent).

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Policy change impact
The launch of auto-enrolment in 2012 doubled pension participation rates of eligible female employees, and mean that an additional 4.6 million women have been saving into a pension since then. The gender gap in pension participation has effectively disappeared and younger generations of women will benefit from the additional time to save for retirement, Scottish Widows found.

The implementation of shared parental leave in 2015 also had a positive impact on women’s ability to save for their futures, while the requirement that employers publish gender pay gaps for businesses with 250+ employees from 2017 has also supported a shift in attitudes.

Employment rates for women increased by 6 percent from 2003 to 2023 and the gender pension gap fell from 25 percent to 14 percent in the same period.

Call to extending auto-enrolment
Jackie Leiper, managing director at Scottish Widows, said: “Progress has been made on the gender pension gap over the last two decades thanks to game-changing interventions like auto-enrolment and improving equality on women’s pay and role in society. But we are still a long way from where we need to be. Without drastic action, the gender gap will take another 20 years to close, and there is a very real risk that we won’t see pension parity for many generations to come. 

“Extending auto-enrolment to support the higher proportion of women who are self-employed, or in part-time work is vital, as is the establishment of a Lifetime Savings Commission. Urgent action must be taken and we must empower more women to take control of their money through life and into retirement, with education, support, and innovative ways to engage with their money. 

“The last 20 years has seen a move towards gender parity on pensions – but there is still more work to do to ensure more women can live and enjoy the lives they want in retirement.”

Take a step back
Coronation Street actress Samia Longchambon, who is helping launch the Scottish Widows report, said: “Working, looking after children, and the busyness of day-to-day life can often mean we forget to take a step back and think about what life might look like in the future. I’ve been in the same job for almost 25 years so I’ve been lucky to have the stability of that. Whilst I’ve not reached retirement age yet, it’s definitely not too early for me to think about what life will be like in years to come. 

“Scottish Widows research shows that it will be decades before men and women retire with the same amount of money. This means as women, the more we can engage with retirement, especially earlier in life, the better. The Pension Mirror is a good place to start though I can’t promise it will guess your age right!”

‘Frozen in time’
Paul Leandro, partner at independent consultancy, Barnett Waddingham, said: “The pension system that we use is outdated. Despite being introduced to address the UK’s worryingly low level of pension savings – and having some success in doing so – issues with our auto enrolment system are reflective of an archaic time in society where men were the primary breadwinners. This research underscores the pressing need for modernisation.”

He said that while society has progressed, pension structures have remained “frozen in time” as women continue to face the brunt of this systemic misrepresentation.

“If our pension system is to work for everyone, we must actively tailor it to the realities of everyone’s individual lives. There is no universal or simple fix to this problem. By simply telling women to contribute more, we are overlooking the inherent fiscal, behavioural and societal issues that are contributing to the continuation of the gender pension gap.

“We must work not only to encourage better saving habits, but also make core changes to the infrastructure of our pensions system.”

He pointed to increasing default auto-enrolment levels and auto-escalating pension contribution levels when women return from career breaks as examples of actions that could begin to tackle  the significant shortfalls in women’s pension savings. However, Leandro recognised that this would be in the context of increased NI contributions.

He added: “But more broadly, it’s about creating a more robust and inclusive pensions framework that offers fairer solutions for everyone.”

Sally Minchella, director at LawDeb Pensions, commented: “The complexity of factors which contribute to the gender pensions gap – including the gender pay gap, the impact of career breaks and reduced hours for childcare, and the disparity in life expectancy – means the onus for fixing it falls largely on employers and the state.

“However, trustees shouldn’t use this to absolve themselves of all responsibility. As stewards of member outcomes, we play a role – and predominantly this role comes in helping individuals understand their own positions, educating, and guiding.”

Minchella said that trustees remain a key player in implementing pensions dashboards, which will ultimately provide a clear view of the pots that have been built up over a career.

Gaps under the spotlight
“For women, this will help demonstrate the impact of gaps and – hopefully – raise awareness of how they may be able to mitigate the impact,” she said. “This sits within a wider comprehensive member communication strategy which should help women to understand the options at their disposal to manage their benefits, or take them in a different form should it be appropriate.

“Whilst these measures don’t directly tackle the root cause of the pensions gender gap, they do go someway to improving visibility and understanding of the issues, and can equip members with the knowledge they need to have better oversight of their pensions. A rising tide floats all boats – better outcomes for members means better outcomes for women. Combined with employer and state intervention, it should be possible to close the gender pensions gap.”

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