Mind the gender pensions gap too

Blog posts

18 Jun 2019

Duncan BrownDuncan Brown, Head of HR Consultancy

Employers and their HR functions are focusing on gender pay gaps, as we move into the third year of measurement and compulsory reporting. Bonus gaps in many cases are even worse than the base pay ones (averaging over 50% and worsening over last year in 70% of cases, according to one recent study). So IES is helping a number of employers to review bonus performance criteria and allocation processes, as well as their recruitment and talent pipelines into higher paying roles, alongside our general work supporting clients and members with gender pay reports and equal pay audits.

But what about pensions? Pensions are excluded from the calculations in the statutory requirement on gender pay reporting and also from considerations of equal pay legislation, which at least simplifies the calculations and an already excessively complex legal process.

Women get a raw deal, again

For decades women have got a worse deal on state pensions than men, and in many cases unwittingly, from employers. While increasing labour market participation and addressing pay gaps will contribute to higher pensions for women in future decades, there may well be many cases now where more action is needed to alleviate risks of poverty among low income women approaching or entering retirement.

Last week a number of events and reports highlighted the problem. In terms of state pension, a case began in the High Court with campaigners arguing that adjustments made to the state pension age passed by a majority-male Parliament have unlawfully discriminated against women born in the 1950’s and failed to give them adequate notice of the change. Nearly four million women have been affected by the changes, which have increased their state pension age to align with that of men from 60 to 66 between 2010 and 2020.

However, while male and female state pension ages might have been equalised, pension incomes for men and women certainly have not. Unsurprisingly, these differences are significant, and are driven by a range of factors, notably women on average spending less time in work than men due to child and wider family responsibilities. 

Successive pension reforms have sought to address this within the state pension system (most notably with the introduction of National Insurance ‘credits’ in 1975, linked to Child Benefit receipt); while the introduction of the New State Pension in 2018 has further reduced (but not removed) the gender gap. Figures from the Department for Work and Pensions show that the mean state pension income for women since the change increased from £126.37 to £143.76 per week, while for men the mean state income dropped slightly (£154.20 to £151.95 per week). However for women and men who reached state pension age prior to April 2016, and receive their State Pension under the old system, an 18% gender gap remains, almost in line with the 17.9% average earnings gap in the economy, which has at least declined since the reporting regulations were introduced.

In occupational pensions, the proportion of men and women contributing to a pension is now almost equal – a consequence of the continued growth in the proportion of women in employment (now at a record high of over 70%); and the legislative introduction of automatic enrolment in 2012 (where every employer with at least one member of staff has to enrol eligible employees into a workplace pension scheme and contribute towards it).  However, women who leave work to look after children have no equivalent to National Insurance ‘credits’ and lose out on years of occupational pension payments, while women returning to work in part-time and often lower paid work end up saving less as a consequence.  Their future retirement income falls relative to men with each passing year. A new  report published last week from The Pensions’ Policy Institute highlights this clearly – showing that the state pension gap is dwarfed by the female shortfall in occupational and private pension savings and payments.

The gender savings gap..

Their analysis of the latest ONS statistics found that between 2014-16, women aged 55 and over had around half the private pension savings of men. Then once retired, their average annual private pension income was £4,524pa for single women over the State Pension age compared to £7,488pa for single men. Combined with their state pension, the PPI modelling indicates that women retiring in 2020 will receive on average around £11,760pa from a combination of state and private pensions, compared to an average for men of £16,330pa, a pension income gap of 28%.

Women therefore have a higher chance of suffering deprivation or poverty in retirement than men, and less chance of achieving a pension income that enables an adequate standard of living. In 2016/17 two-thirds of women over state pension age had an annual income of £15,000 or less compared to 41% of men.

IES’ work with the European Commission has helped to highlight that the gender employment gap is common throughout Europe, with the total cost of lower female employment rates and earnings estimated to be around €370 billion, almost 3% of the EU’s total GDP. Closing the pension as well as the pay gap is a key plank in the Commission’s gender equality strategy. The gender pay gap in the EU persists at an average close to 16 %; but this translates further into the average pension gap of 35.7 % in 2017, with a much higher risk of poverty in old age for women. More than 20 % of women aged over 65 are at risk of poverty or social exclusion in the EU, compared to 15 % of older men.

Shorter and more irregular working hours, careers and employment patterns; a concentration of employment in lower skilled occupations; a much greater incidence of childcare and wider caring responsibilities; combined with exclusion from many traditional male and full-time-worker-dominated occupational pension plans: these causal factors will be familiar to those HR professionals who have been analysing and working on their gender pay gaps in recent months.

Solutions, as our research on pay gaps has shown, will require a multi-pronged programme of measures driven by a combination of state, employer and individual actions. Consumer rights group Which? wants the government to introduce a £2,000 cash boost to their pension pots for first-time mothers. Due to maternity leave and reduced working hours for childcare responsibilities, mothers save around £15,000 less into their retirement pension pot compared to full-time working women, according to their analysis, and if anything this is likely to be an under-estimate. The research found that the average working woman who took time off for childcare duties saved about £68,000 towards retirement compared to £83,000 for full-time working women.

Shared parental pay as well as shared parental leave is gathering growing support in Parliament, given the continuing low take up by fathers, with employers including the NHS already taking action to enhance their paternity pay provisions. The government has also committed to introduce pension dashboards, which will allow people with more varied employment patterns and multiple small pensions to view all of their pension pots in one place.

Flexibility is key

So what else should HR professionals be doing to specifically address the pension gender differential? Speak to your occupational pension advisers and look at male and female take up and contribution rates under your current plan(s). Women and many younger employees want a more flexible pension model that is designed around their specific needs and work patterns, rather than a traditional, male, linear pay progression, savings and investment model. Increasingly people will take time out from work and stop and start contributions frequently throughout their lives.

The PPI suggests pension schemes should offer alternative investment options which are better suited to this type of employment and pay pattern , for example by allowing a portion of a woman's pension fund to be set aside in an accessible short-term investment; or by ensuring more default funds are invested in alternative assets, which are likely to provide stable long-term returns. Pension projections and communications with plan members should be also based around more varied working patterns.

And just as involving more women on the selection panels for higher paid posts is a common component in employers’ gender pay action plans, so a higher representation of women and other minority groups on trustee boards and management committees in the overwhelmingly ‘grey white male’ world of pensions, could also help bring attention to the needs of these groups further up the agenda.

‘It is key that employers see women as a crucial segment of their workforce, and that the adaptations needed to help them reconcile their care responsibilities with work are not regarded as a ‘women’s problem’ but an area for action from which the workforce as a whole as well as the employer can benefit.’

This conclusion from our report on the gender employment gap in Europe applies now with particular force when we look at the UK’s gender pension gap. Government actions on the state pension should help to reduce the disparity over future years. But the development of gender pay action plans and general focus on this issue presents a major opportunity for HR to address their employees’ gendered pension and retirement disparity as well.

Subscribe to blog posts

Any views expressed are those of the author and not necessarily those of the Institute as a whole.