The gender pensions gap and how employers can help

March 08, 2022

The gender pensions gap is a problem that stems from the gender pay gap. It describes the difference in pension income for men and women. From 2019-2020 the gender pensions gap increased to 37.9%. This is a staggering number and shows that the problem of financial inequality between men and women is not a thing of the past. Despite the gravity of the situation, there is currently no UK government estimate of the average gender pensions gap or any policies in place to address the issue. 

The pension pay gap data

At the beginning of a womens career the gender pensions gap between men and women is said to average at 17%. However, when reaching retirement, the gap widens to 56%. This shows that if not addressed, the gap can cause women to retire with a severe lack of funds. The impact on their retirement lifestyle could be huge. Compared to the average retirement pension pot of £21,000 for a man, women retire with an average of £10,000. Therefore, women retire with approximately less than half of the pension fund held by their male counterparts. 

A recent report found that there is a whopping 40.3% gap in pension savings between men and women. This is an average difference in pension income of about £7,500 per year. Over time, this results in a savings gap that becomes evident and dramatically impacts women’s ability to retire comfortably at the age that they wish to. The amount of money that people save into their pension pot is usually directly correlated to their salary. For this reason, the 15.5% gender pay gap could mean that women earn less money on average, therefore contributing less to their pension pots. 

Why does the gender pensions gap exist?

There are several reasons why the gender pensions gap exists. One main reason is that women tend to take more breaks in employment due to life circumstances than men. These circumstances include reducing working hours to care for family, or perhaps not working at all for a period of time. As a result of employment breaks, women tend to earn less throughout their lives than men and this is combined with the pressures of the gender pay gap. Furthermore, due to the lower average salary of a woman, female employees are not always eligible for auto-enrolment into their employers workplace pension scheme. If they do not opt into the scheme voluntarily, they will miss out on the opportunity to reap the benefits of employer contributions. In terms of the state pension scheme, women are often not entitled to the full amount due to gaps in their national insurance contribution history caused by failing to reach the lower earnings limit. The state pension gap between men and women is not set to be investigated until 2041 and even then, only people who reach state pension age from that year are set to benefit.

According to research from Scottish Widows, on average, women in their twenties today are on course to retire with £100,000 less in their pension pots than a man of the same age. This is likely to be related to the fact that according to research, 75% of part time workers are women. As women are viewed as the main homemakers and family carers, they often sacrifice their careers to take a step back, spending more time in the home and caring for children. Women are said to earn about 16% less than men according to the latest figures from the Office of National Statistics. Unfortunately, research shows that 50% more women than men are heading towards retirement without any private pension savings. They may be forced to rely on the state pension, which as mentioned above may not be paid to every woman in full. 

It is clear that in order for progress to be made in closing the gender pensions gap, the continuous issue of the gender pay gap must first be tackled. 

What can be done to help solve the issue?

To lessen the impact of the gender pensions gap, women should take a proactive approach to their pension funds, ensuring that they seek education and knowledge on their individual situation. Some people may not be aware that they are legally entitled to join their workplace pension scheme even if they earn less than £10,000 annually. If women are able to, they may consider increasing their workplace pension contributions. This may result in larger employer contributions which combined will help to boost their overall pension funds. If a woman decides to initially opt out of their employer’s workplace pension scheme, they could choose to reevaluate their choice to ensure that they are contributing at least the minimum amount towards their retirement. 

The average pension pot for a married man is £53,000 compared to £10,000 for a married woman. If divorce becomes a reality for a married couple, financial pressures are increased and saving for retirement may take a back seat and become less of a priority. In order to reduce the financial burden, assets should be split to ensure that one individual does not have insufficient funds to live on once the divorce is finalised.

Another way that women can address the gender pensions gap is to begin paying into their pensions when they are younger. The general rule of thumb is to take the age that you were when you began contributing to your pension and half this figure. This gives you the amount of your salary that you should ideally be contributing towards your pension. The younger you are when you begin contributing, the less you will have to pay in each year to reach your retirement goals. It is a good idea for men and women to check their state pension forecasts. This will allow women to gain knowledge on how many years of national insurance contributions they have earned, therefore aiding their retirement preparation. If they have not made the full 35 years of national insurance contributions required to receive the full state pension, they have the option of making voluntary payments to fill these gaps if possible.

 

How can employers help?

Research shows that there is a proven correlation between gender equality and business performance. It is in the best interests of your business to take steps to address the gender pensions gap and help female employees to save towards their retirement. 

Employers should ensure that they focus on the women within their workplace, educating them on their pension wellbeing and helping them to make informed decisions about how their choices may affect their future. Gender specific financial education will help you to focus on the areas that affect each gender more thoroughly. 

Introducing salary sacrifice pension is a way of saving employees money on their national insurance contributions. This ultimately increases an employee’s take home pay. This could be beneficial to women in the workplace as employers will often use their businesses’ national insurance savings made through the scheme to boost employer pension contributions. 

Encourage women to progress in their careers, making positive changes to the structure of parental leave benefits offered by your business whilst offering career flexibility and more affordable childcare options. This creates a family friendly workplace ethos and allows women to benefit from a work/life balance. Promoting the idea of shared parental leave will ensure that the pressure to take time away from the workplace is not solely placed on female employees. Despite the benefits of shared parental leave, research shows that only 2% of new parents have used this since its introduction in 2015. This is perhaps due to a lack of employer provided education surrounding the subject. 

Another suggestion to employers who wish to lessen the impact of the gender pensions gap is to pay close attention to young women in the workplace. Half of 22-29 year olds are still not saving enough for retirement above the poverty line. This may be linked to the general lack of engagement shown amongst younger employees when it comes to retirement planning. Encouraging young women aged 18 to begin contributing to their workplace pension could result in an extra £12,500 being accumulated in their pension pot. This will also benefit young women in the form of extra employer contributions and tax relief. 

Employers could consider matching employee pension contributions if possible to encourage women to save more towards retirement in a shorter period of time. Female employees could also be offered the chance to work longer hours later in life, take their pensions later than planned or make voluntary contributions to their pension to counteract any contribution gaps. 

It is important that employers take action and make changes to their workplace in order to tackle the issue of the gender pensions gap. Women make up half of the world’s population. It is in the best interests of everybody to step up and inform themselves about how they can help to drive positive change.

By Mintago Team

Mintago is an FCA regulated company that helps businesses save on their workplace pension NI costs and improves the financial wellbeing of their employees. For the employer, Mintago provides a salary sacrifice pension hassle-free implementation program which creates direct savings on monthly (National Insurance) NI payments. We manage the whole process including communication, compliance and ongoing management. No need to switch pension provider, either. For the employee, Mintago’s unique financial wellbeing platform helps find lost pensions quickly, manage employee pension contributions, while helping them understand their financial situation with over 1,000 pieces of content.

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