UK pensions system disadvantages women

by | Mar 29, 2021

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Barnett Waddingham’s analysis into defined contribution (DC) pension schemes reveals that there is a stark disparity in wealth at retirement, with there being a 25 to 45% difference in men and women’s pension pots at retirement.

Amanda Latham, Policy & Strategy Lead at Barnett Waddingham, commented, “The UK private pension system was born in a society very different to today, during the early 1900s at a time when women typically stayed at home, predominantly men went to work, and they generally remained with the same company for many years. Whilst society has evolved, the pension system has not, at least certainly not at the same pace.”

The study, which has analysed the data and saving trends of some 35,000 members in seven DC pension schemes, finds that the gender pensions gap is caused by several factors. This ranges from the gender pay gap, to women being disadvantaged by career breaks, and an intrinsically biased UK pension system.

 
 

 

 

 
 

The gender pensions gap begins to diverge most clearly after the early 30s. After age 32, a man typically contributes up to around £500 per year more than a woman, despite contributing the same percentage of their salary. As salaries rise, the difference is starker, with men paying up to £1,500 per annum than women. This indicates that the gender pensions gap is at least partially driven by the gender pay gap.

 

 
 

 

Men and women generally contribute the same percentage of pensionable pay up until their mid-50s, though contribution amounts are lower for women due to the pay gap. From their mid-50s, women typically increase their contribution rate higher than men, generally at around an additional 1% of pensionable pay. As we commonly find that people engage more with pensions the older they get, women closer to retirement are seemingly realising the need to catch up with their retirement saving.

 

The pension system is failing to support mothers, as the impact of career breaks is a driving factor behind women having less pension savings. For a woman taking two 12 month career breaks in her early 30s, with no increase to pension saving or salary during this time, she can end up having 10% less in her pension pot at retirement compared to a woman with no breaks. A 35-year-old would need to increase contributions by an additional 1% of pensionable pay to make up this shortfall.  A woman waiting until she’s 55 will need to increase contributions by around 6% of pensionable pay; i.e. generally much higher than the increase we currently see in women’s contributions as they approach retirement.

 

The design of the auto-enrolment system is also disadvantaging women. There is a higher proportion of women earning under the auto-enrolment threshold of £10,000pa then men, and in some schemes, there are up to three times more women under this threshold.

 

Whilst men and women are generally saving less than required to provide for a sufficient income in retirement, the gap amongst women is more pronounced. Men are 10-25% more able to fund the PSLA Living Standard income than women across all affluent groups – the measure of how much people need to afford their desired lifestyle in retirement. This is illustrated in the below table.

 

Affluence band % of PLSA Living standard Income – Male % of PLSA Living standard Income – Female
Low 30% 20%
Medium 60% 50%
High 120% 95%

Amanda Latham concluded, “The driving force behind the gender pension gap is clearly the gender pay gap, especially in the high affluence group. Disparity in income is causing a knock-on effect on pension wealth, despite, by and large, women contributing the same proportion of their salary to their pension as men. But other important factors are at play.”

Latham continues, “It’s clear that women are disadvantaged if they have children or have other family caring responsibilities, as the resulting hit on pensions is stark. And with more women working in lower skilled or zero-hour contract roles, too many are falling outside the auto-enrolment threshold. It’s therefore not enough to simply say that women need to contribute more to close the gap. Instead, we need to consider fiscal, behavioural, and societal issues collectively, and work to create a more robust and inclusive pensions framework that offers fairer solutions for all.”

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