On international women's day, Sophie Cutler and Amelia Turner, trainees at Burges Salmon LLP, have looked into what the gender pension gap is and what can be done about it.
Barriers continue to prevent women from saving as much for retirement as men, which contribute to the significant gender pension gap that is observed.
The gender pension gap is defined as the percentage difference in pension income for female pensioners compared to male pensioners, and in the period 2019-2020 this was calculated as 37.9 per cent. A recent report on the gender pension gap published by Prospects 2020 found this to equate to an average difference in pensions income by gender of about £7,500 per year in real terms.
Alongside this, women are also found to be almost twice as dependant solely on their state pension in comparison to men.
Looking into the causes of the gender pension gap reveals what changes can be made, for example by employers and trustees of pension schemes, to address this disparity.
Five reasons why the gender pension gap exists
The gender pay gap. Women earn on average 35 per cent less than men during their careers, which is likely to directly affect how much money women have available to put into their pension. It also means that women are likely to start paying into their pension pots later as reduced salaries lead to women taking longer to repay student debt than men.
Automatic enrolment into pension schemes. To be automatically enrolled in a workplace pension scheme an employee must earn £10,000 per year. As women are more likely to be in lower-paid and part-time jobs, this automatic enrolment threshold forces women to be more pro-active to gain the pension benefits that are provided automatically to others that are earning at least £10,000 per year.
The lower earning threshold for automatic enrolment. This is the earnings threshold that allows employees to qualify for certain state benefits, including the basic state pension, and it is currently £6,240 per year. Again, this threshold disadvantages lower-paid and part-time workers in contributing to their pension, a group that is disproportionately made up of women.
Career breaks. The amount of state pension that can be received is largely based on the number of years an employee has worked. Women remain more likely to take on unpaid caring responsibilities for children and elderly family members. As a result, pension savings can be greatly impacted as a knock on consequence of a career break or reduction in hours worked.
The pink tax. This phrase is used to refer to the increased costs costs of being female, associated with women’s products or services, leaving women with less money to contribute to their pension.
Five things that could help tackle the gender pension gap
Address the gender pay gap. Employers should actively create a diverse, inclusive and equal workplace by prioritising equal treatment and opportunities for all.
Voluntarily enrol employees. Employers can voluntarily enrol employees that would not usually qualify for automatic enrolment. This could include employees that are above state pension age or employees that earn under £10,000 per year.
Flexible working. Employers should also facilitate more flexible working patterns for all employees, which would enable caring responsibilities to be shared more fairly between parents, enabling women to continue their careers and pension contributions throughout parenthood.
Training. Employers can provide pension contribution workshops to their employees to educate women on the benefit of increasing their personal monthly contribution towards their workplace pension.
Awareness. If employees are aware of the pensions gender gap as soon as they start working, women and men can take steps to mitigate this.
Because women are more likely to work part-time, in lower paid industries, and take more time out to bring up their families, a woman will need to work an extra 37 years to allow her to have a pension pot the same size as her male counterpart.