The Gender Pension Gap – the ins and outs of the gender pay gap’s younger sibling

When considering gender-based financial inequality, the topic that often comes to mind is the gender pay gap, namely the difference in average pay between men and women within an organisation. The more unknown younger sibling is the gender pension gap, the difference in average pension savings between men and women. This is inextricably linked to the gender pay gap, and can leave women at a significant disadvantage in retirement when compared to men. This article will look to understand the gender pension gap, explaining why it exists, why it pervades and what steps can be taken to close the gap on a governmental level.

Why is there a gap?

The gender pension gap is the difference in retirement income between men and women. It can take various forms and can affect both private and state pensions.

A significant cause hereof is the difference in saving power that women and men enjoy throughout their lives that allows them to build up their retirement savings. The gender pay gap immediately puts a divide here. As of April 2024, the Office for National Statistics has found the pay gap to be 13.1% across all employees. When considering full-time employees specifically the gap sits at 7%. This means that the average female worker is earning ￡0.87 for every pound earned by the average male worker. This inherently means that women have less disposable income that they can put towards their retirement savings and investments.

This disparity in spending power also means that women find themselves less able to pay off debt, which means that they are forced to spend longer paying these off before they can begin saving for retirement. A prime example is with student loans. A study in the British Medical Journal found that when comparing male and female medical students with the same amount of initial student loans, women needed 6 more years to pay back the debt, and were required to pay back an extra ￡4,500 due to the interest accrued over the extra period. The gender pay gap and the debt disparities compound to make it significantly more difficult for women to even start saving for their retirement, let alone do so effectively

Moreover, there is the added constraint that emerges from women generally needing to take more breaks from work. The most prominent example is maternity leave, however, it is not restricted to this as in our society, women often find themselves being the primary care-givers and having to take care of the majority of unpaid work in their homes, even if they are in full time employment and/or are the breadwinners of the family. Unpaid work refers to domestic work done within the home, childcare as well as any other responsibilities that could be monetarily compensated, but aren’t. As of 2016, the Office for National Statistics found that on average, women engage in 60% more unpaid labour than men. If put in terms of the monetary value of this work, the average women would be earning ￡259.63 per week whereas the average man would be earning ￡166.63. The excessive disparity means that women are more likely than men to be the ones to take time off work to attend to caregiving or domestic labour activities. This means paid work hours are sacrificed to support unpaid hours, reducing the ability to save for retirement.

In regard to maternity leave, in the UK, women are permitted more time off work after having a baby than men, allowed up to 52 weeks, compared to a maximum of 2 weeks paternity leave for men. Taking maternity leave can have a significant career impact, with women not earning their full salaries, as well due to being out of employment for an extended period of time, having the potential to influence negative career shifts. During maternity leave, an employer has to cover 90% of a salary for 6 weeks, however for the subsequent 33 weeks, they only need to pay an employee a maximum of ￡156.66 a week, after which the maternity pay stops. Therefore, if a new mother wishes to take the full 52 weeks available to her, she will need to fund herself for the final 13 weeks.

With maternity pay there is an additional worry about the impact it will have on future career prospects. In the UK, notably there is protection against redundancy for 18 months from the start of maternity leave. As such, it isn’t legal for an employer to fire their employee during their maternity leave or for 6 months from when they have returned (assuming they took the full year of maternity leave). Nevertheless, according to evidence collected by Harvard University in 2018 from a number of different countries, the longer new mothers are out of employment (due to maternity leave), the less likely they are to be promoted, or receive a pay rise after their pay is over. They are also more likely to get fired or demoted in the long run. It is posited that this comes from stereotypes that women who take longer maternity leave are less committed to their careers. That of course isn’t true, yet such harmful stereotypes mean that women have to choose between career and family, and often sacrifice the latter if they hope to have a successful career, and a comfortable retirement.

Finally, the cumulative effect of these career breaks doesn’t just have an effect on private pensions but also influences state pensions. For a state pension, you need to have been making national insurance contributions for at least 10 years to be able to get any support. In order to get the full state pension you need to have been making contributions for at least 35 years. Naturally, if you have to take more career breaks, and/or take maternity leave multiple times due to having multiple children, it becomes more difficult to attain that full state pension, resulting in another disadvantage overall.

When all this is compounded, it results in a disparity that goes beyond simply just a difference in average pay. It means that women are at a significant disadvantage due to the cumulative effects of different influences, from pay disparity to the impact of debt, to state pension inequality. Because of all of this, the gender pension gap stands at 35%, meaning if the average man had ￡100,000 in pension savings, the average woman would have ￡65,000.

Can this change?

Fixing the gender pension gap is a crucial initiative to promote equality and financial security, as well as reducing retirement poverty, an issue which disproportionally affects women.

In the short-term, however, the answer is a hesitant no. The gender pension gap is unfortunately so institutionalised, that fixing it will be a long and arduous process. Nevertheless, measures are starting to be introduced to try and address it. For instance, from 2023 the government has now begun reporting on the gender pension gap annually, in order to finally have a metric to better ‘understand and highlight the problem’. This will allow for more measurability and accuracy in reporting figures, meaning awareness should be heightened and the pressing nature of the problem will become clearer.

Auto Enrolment

Auto enrolment is a system whereby people are auto-enrolled into a workplace pension by their employer. It is effectively a presumption that you wish to have a workplace pension, when you start a new job, which means you and your employer start saving money in that pot without any added discussion. Naturally, engaging in a workplace pension scheme isn’t compulsory and you are free to opt out of this.

Where this becomes related to the gender pension gap is in relation to the boundaries of where auto-enrolment starts. You are only auto-enrolled if you are earning over ￡10,000 per annum. Those earning below this amount will not be automatically enrolled. As such, those who find themselves working part-time will be less likely to be able to save into their pension as a result of this. As discussed earlier, as women are disproportionately more likely to find themselves needing to take over childcare responsibilities, they are more likely to find themselves working part-time, especially during the early years of the child’s life. This in turn means that they often aren’t subject to autoenrollment as, being part-time they won’t be earning over the limit, and won’t automatically be saving for their pension.

There are calls to change this. A recent piece of legislation called the Pension (Extension of Automatic Enrolment) Act 2023 allows the Secretary of State for Work and Pensions to amend that ￡10,000 limit themselves without needing to recourse to Parliament. So far, however, no change has been made. Changing or removing this limit would grant more part-time workers the ability to save in a workplace pension without the need to discuss or negotiate with their employers, increasing access.

Pension sharing on divorce

A further situation where women disproportionately find themselves at a disadvantage is during divorce. A core example relates to shared property, especially where shares of ownership are calculated based on contributions made to the purchase of the property. Pensions tend to be the second biggest asset that people own apart from land. Finding a way to split this often becomes an especially heated topic in regard to divorce proceedings and women generally find themselves with a greater reduction in pension wealth than men. Added to this is the aforementioned child-care element, so that women, due to being more likely to find in part-time work, are less able to contribute to that overall marital pension pot. Thinking back to the discussion on unpaid labour, this is not for lack of labour itself, rather simply for lack of labour that society deems to be of monetary value. This problem has been highlighted by the Select Committee for Work and Pensions; however little has come from this.

Childcare support

One thing the government has been seeking to improve is childcare support throughout the UK. This is especially since this specific issue is the biggest contributor to the pension gap, according to the Pensions Policy Institute. In fact, women overwhelmingly find themselves going back to work following childbirth, despite the complications that childcare brings with it. As of 2022, over 71% of women with children aged between 0-4 were in employment. Naturally, however, this figure does include all forms of employment, i.e. both part-time and full-time. Various childcare support schemes have been introduced to support parents of children aged 3-4 to help them, as well as those who are disadvantaged with children aged 2. Nevertheless, this still only encapsulates a small part of that child’s life. Childcare truly is a full-time job, and so, being in full-time employment as well can simply be unachievable for many. Providing better support throughout more years of the child’s early formative years, will allow more people to get back to work. This is in the government’s interest, as incentivising more people into employment by alleviating their childcare responsibilities is fiscally beneficial for the economy.

Conclusion

To conclude, the gender pensions gap is a pervasive issue which leaves women at a significant disadvantage overall when compared to men. There appears to be some commotion in Westminster seeking to address this issue more head on, yet so far, not much has come from this. It is hoped this will change, and should change. It is simply a fiscally responsible objective which will benefit the UK economy tremendously.