Although it is only a little over 6 months since Pensions Minister Laura Trott took office, on 5 June she delivered on her promise to publish a report on the gap between male and female private pension wealth. The report, titled ‘The Gender Pensions Gap in Private Pensions’, provides long-awaited clarity on the Gender Pensions Gap and how the Government intends to review and monitor it.
For those individuals with private pension wealth, the report defines the Gender Pension Gap (“GPeG”) as “the percentage difference between female and male uncrystallised median private pension wealth around normal minimum pension age (currently 55)”. Data collected from 2018 to 2020 shows an overall GPeG of 35%. However, this percentage varies for different age bands. The GPeG is lowest for people in their thirties, being 10% for those aged 35-39. However, the gap increases to 47% for those aged 45-49.
Automatic Enrolment (“AE”)
: AE was introduced in 2012 for those aged between 22 and State Pension age, were workers and earning over £10,000 per year. The report shows that for those who are eligible for AE, the GPeG is slightly smaller at 32%. For age bands 30-34 and 35-39, pension wealth for those eligible for AE is higher for female savers than it is for male savers. However, female savers aged 40-44 have 33% less pension wealth than male savers. Since the introduction of AE, almost an equal percentage of men and women now save into a workplace pension and, for those who have benefitted from AE for most of their working life, this has allowed for a closing of the GPeG. The same cannot be said for those who have not benefited from AE from the outset of their careers, with the GPeG increasing for older age bands.
Changes to the GPeG over time The GPeG has fallen from a maximum of 42% in 2006-2008, and while the percentage has fluctuated over time, there has been a clear increase in female pension wealth since this period. In 2006-2008, the average female saver had £50,000 of private pension wealth at age 50-54 compared to the male saver average of £85,000. In the period from 2018 to 2020, this increased to £94,000 for female savers aged 55 to 59 and £145,000 for male savers. This shows an increase of 90% for the average female, compared to 70% for the average male.
Defined Benefit (“DB”) vs. Defined Contribution (“DC):
The report states that the GPeG is largest for savers with only DC pension wealth (60%) and smaller for those who hold some DB pension wealth (DB only = 44%, DB and DC = 34%). It appears that a key driver in the GPeG is a lack of DB wealth for female savers. With time, AE may serve to redress the imbalance between male and female pension wealth. However, it seems that the decline in the availability of DB pension schemes for younger savers will mean that, as the GPeG decreases, so will the overall value of private pension wealth.
Participation As previously touched upon, the introduction of AE has resulted in an increased participation rate for female savers, which the report states to be 89% compared to male savers’ 87%. Since 2012, the total of female pension saving has increased by over £4 billion more than the increase in male pension saving.
Since 6 April 2017 private and voluntary sector employers with 250 or more employees have been under a legal duty to prepare and publish a Gender Pay Gap (“GPG”) report. The pensions sector has historically been further behind, largely due to the difficulties surrounding defining what is a “gender pensions pay gap”. It may be that, now that we have a legal definition, employers will, in time, be required to publish their GPeG figures along with their GPG.
Ultimately, however, it appears that the biggest policy question arising out of the report surrounds the decline of DB accrual and the impact that this has on private pension wealth more generally. Whether this impact can be reduced through education and/or an extension of auto-enrolment remains to be seen but any future Government will need to address how to reduce the GPeG in future whilst simultaneously avoiding an increase in pension poverty.
If you would like further advice on any of these points, please do contact our Pensions Team. This blog was written by Alice Burns.
According to the most recent data (2018 to 2020) the Gender Pensions Gap in private pensions stands at 35%. When considering only those who are eligible for Automatic Enrolment, the gap is smaller and stands at 32%. The Gender Pensions Gap varies for different age bands and is lowest for people in their thirties.