Pension engagement helps to tackle the gender pension gap

This article was first published on Actuarial Post .

The recently appointed Minister for Pensions Laura Trott announced a shake-up of private pensions and consultations at the end of January to create fairer, more predictable, and better-run pensions. Within the supporting evidence for these measures, a new report by the Department for Work and Pensions (DWP) found a fundamental problem when it comes to engagement with pension saving. In that people do not understand the benefit of engagement.

People still do not believe that allocating time to understanding their pension better will help in planning for a more comfortable retirement.

Those in Defined Benefit (DB) schemes might get away with limited engagement. There are also some in Defined Contribution (DC) schemes who work full-time for 40 years, paying into a scheme with a higher default contribution level, and who might also get away without having to engage too much. The chances are, these are more likely to be men.

The larger share of caring responsibilities still overwhelmingly falls to women with many opting to work part-time , often meaning the default position is less likely to deliver a good retirement outcome. Decisions made to balance caring responsibilities and careers require decisions to be made about pension saving. The benefits of engagement are therefore arguably greater for women.

There is an argument, for people who live together, that total household pension wealth matters more than individual pension wealth. However, this can create financial dependency on a partner. YouGov found almost one in three (29%) women in a relationship were at least somewhat financially dependent on their partner, a figure which rises to 43% among part-time workers.

Aviva data shows this gender pension imbalance can persist into retirement with women aged 60 to 65 having pension pots which are on average just over half (57%) the size of men’s pots at the same age .

The obvious risk for women in this situation is if their relationship should break down. Aviva has found one in seven people (15%) didn't realise their pension could be impacted by getting divorced .

While you might think the simple solution would be to share pensions as part of a divorce or dissolution of civil partnership the same way as any other wealth but, somewhat surprisingly, it does not happen by default. Aviva found a third (34%) made no claim on their former partner's pension when they divorced.

A little pension engagement can go a long way

The first step is to understand appropriate contribution levels and, that automatic-enrolment (AE) minimums are unlikely to be enough. A good rule of thumb is to ensure total pension contributions – employee and employer – amount to at least 12% of pay.

Many employers offer higher levels of contributions through a matching mechanism, but employees automatically enrolled on lower levels might be leaving these additional contributions on the table. Simply understanding that more pension contributions might be on offer could add thousands of pounds to a retirement pot.

Employees should take advantage of the online planning tools which are available from most pension providers. Keep in mind though these do not always consider career breaks and part-time work.

The Pensions (Extension of Automatic Enrolment) (No. 2) Bill is an encouraging first step toward fairer pensions for all UK workers. The removal of the lower qualifying earnings threshold (LET) has the potential to deliver a huge boost to savings of millions of lower paid workers and help close the gender pension gap. Calculating pension contributions from the first pound that people earn will mean bigger pension pots for part time workers in particular, the majority of whom are women.?

Engagement is the key to unlocking better retirement outcomes for women. Understanding the impact of part-time working and career breaks, the important role of employer contributions, and the simplicity of ticking the right box on a divorce settlement are the first steps in levelling-up pensions for women.

By Dale Critchley, Workplace Policy Manager at Aviva. Dale is an expert commentator with over 30 years’ experience in a variety of roles within the workplace benefits market. He is an Aviva spokesperson specialising in issues relating to workplace pensions and is regularly featured in the media.

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Contains public sector information licensed under the Open Government Licence 3.0.

??Gov.uk | 30 Jan 2033 | Minister unveils plans to start closing the pensions inequality gap

??Gov.uk | 30 Jan 2023 | Understanding member engagement and workplace pensions

??House of Commons Library | Women and the Economy | 02 March 2021 | Women made up the majority of part-time employment (38%), compared to 13% of men.

?YouGov | 05 May 2021 | One in three women in relationships are financially dependent on their partner

?Aviva data | Jan 2023 | Aviva Workplace Pension Data: Percentage difference in total workplace pension pots in January 2023, men versus women, by age group, based on a sample of 5,004,064 workplace pension plans.

?Aviva | 03 May 2022 | Thousands risk pension poverty after divorce