Mind the Gender Pensions Gap; Is COVID-19 shining new light on a perrenial problem?

With the outbreak of COVID-19, we are in unprecedented times. A mandatory lockdown for the entire global population has severely disrupted the routines of millions of families and workers, only to have been compounded by country-wide school closures. With best efforts to keep the kids occupied; such as nursery via Zoom, national P.E. with Joe at 9am, immediate money worries and grandparents (the usual go-to) for many families off-limits, the “real” cost of staying at home is revealing itself to the nation.

The real cost of having to stay at home has also played the biggest part in contributing to a much wider problem, referred to as the “gender pensions gap”. This gap has been around for decades and mainly impacts the “wealth in retirement” for generations of women in the UK.

Historically, women have always had a raw deal when it comes to maintaining long-term financial stability and bearing the primary responsibility of managing childcare. While out of paid employment, contributions to the workplace pension cease. Once ready to return to work, many women find their previous, full-time roles are no longer available; therefore, they return to part-time employment while also committing to family and childcare needs.

To be eligible for a workplace pension under the auto-enrolment (AE) rules, employees must be earning ￡10,000pa as a minimum. Most women returning to part-time work, will not meet this minimum-earnings threshold and therefore miss out on vital contributions, to help their retirement income.

As an aside, women who do return to work in lower paid, part-time roles, tend to miss out on career progression and opportunities. This really is the icing on an awfully lop-sided cake. The opportunity cost is one which is often forgotten but does its part in widening the gender pay gap. We are all too familiar with the domination of men at senior executive levels and the impact that has on the gender pay equation.

We have two gaps widening here as a result, the gender pay gap (as men represent a higher proportion of the full-time workforce and at higher average salaries) and the gender pensions gap. According to the ONS, the figures sourced from their paper, Gender Pay Gap in the UK 2018; 5.4 million women work part-time compared to just 1.7 million men. On average, men are paid more than women from graduation to retirement.

The People’s Pension published a paper on the gender pensions gap in 2019 and quotes;

“By the time a woman is aged 65 to 69, her average pension wealth is ￡35,700, roughly a fifth of that of a man her age, according to a study at the end of 2018 conducted by the Chartered Institute of Insurance (CII)”

According to the FT Adviser, a recent poll conducted by investment provider Willis Owen found that one third of women do not have any pension provision. A Pensions Policy Institute (PPI) paper "Understanding the Gender Pensions Gap" indicates women could account for 60% of those in later life (beyond 50) with no pension provision at all. The survey explains that “those approaching retirement without any private pension wealth are unlikely to have a retirement income of ￡15,000 per annum, which is considered a minimum amount required to achieve a comfortable standard of living, though some people would require more.”

Appoximately1.2 million women in their 50s have no private pension wealth and hence will rely on the State Pension system and/or their partner to provide a retirement income. This represents approximately 5% of all women.

Unfortunately, there are limited options for those women with no provision or far too little. Reliance will largely be on the State Pension and other assets. Obtaining full credits for women who take time out for families is an area identified as particularly unfavourable. Women are impacted when they return to work and are unable to earn enough to meet the National Insurance contribution threshold of ￡8,632pa (set to rise to ￡9,500 for the next tax year).

Additional tax-relief is available as a top-up for lower earners into workplace pensions. However, approximately 1.75m women in this lower earnings category miss out on this top-up because they are in “net-pay” work Schemes, which do not pay the bonus to those earning less than ￡12,500pa. A no-win for the majority of those part-time returners, subject to net pay Schemes.

The gender pensions gap is real. The impact on women is severe, and in many cases, there is a dependence on partner income. While that vision is plausible, there is always a risk for unexpected events throughout life and while not the subject of this piece, the impact of divorce on the gender pensions gap is particularly harsh.

There are a number of contributory factors to the gender pensions gap and while we cite the gender pay gap and trends in career breaks, some awareness of changes and initiatives helping to close these gaps and bringing much needed pension equality, are also highly relevant, especially in a time where we are seeing so much policy and legislative change resulting from the impact of COVID-19.

An example of change would be the new women’s weekly State Pension income increasing from ￡126.37 to ￡143.76. According to the PPI, this has dramatically reduced the gap in State Pension between men and women by around 70%. For men, the mean State income has stayed about the same (￡154.20 to ￡151.95 per week).

Reducing the earnings threshold for auto-enrolment from ￡10,000 would be an effective initiative in bringing more eligible women into receiving a workplace pension through AE. Taking that further, the limit could simply be removed along with a revision of how to ensure that the lower earners in net-pay schemes are not unfairly disadvantaged. This would of course cost the government in tax-relief offered.

Outside of closing the pay gap, there is a well-supported argument to increase caring allowances or State Pension carer credits to those out of work and caring full time for children and (perhaps even more relevant now, the elderly). Alternative routes may include reducing or subsidising the cost of childcare (beyond the welcome extension to Tax Free Childcare Scheme)to help mothers assimilate back into full-time roles quicker and with the help of employers offering more flexible working, benefits and support.

Millions of UK workers are facing unemployment today and a significant change to working patterns. This is a good opportunity for people to increase their understanding and awareness of the longer-term impacts a broken record of pension contributions can have on their future and where required, seek guidance.

It’s in times like this when we realise, we are all human and all working toward creating a safe environment for ourselves, our families, and our colleagues. Perhaps, in this time where we see such indiscriminate targeting from threats beyond our control, we are now likely to see men and women suffering from the same employment and consequent pay barriers.

Is this now an opportunity to begin moving the dial, re-setting how we help the future generation of retirees and reducing our gender pensions gap? In this time of crisis, we are dependent on our nation’s health service, which relies upon care givers and a large segment of low-paid workers, quite literally risking their own lives. I applaud every effort to recognise this group of employees with national gestures of gratitude, but I do think we could go a lot further to really ensure they get the pay and future pension they rightly deserve.

Sources:

Paper: The Gender Pensions Gap 2019

Author: the people’s pension

https://thepeoplespension.co.uk/info/wp-content/uploads/sites/3/2019/05/Gender-pension-gap-report_2019.pdf

Paper: Understanding the Pensions Gender Gap

Author: The Pensions Policy Institute: (PPI)

https://www.pensionspolicyinstitute.org.uk/media/3227/20190711-understanding-the-gender-pensions-gap.pdf