Written by Caitlin Southall, Pension Technical Manager at Curtis Banks
Every week, it seems a worrying new statistic comes out about the gender pensions gap, and the seeming disparity in financial knowledge between men and women.
The gender pensions gap is defined by the FCA as ‘difference between female and male non-zero uncrystallised median pension wealth around normal minimum pension age’ and the gap may be wider than you think. Based on those aged 55-65 and therefore preparing to enter retirement, the gap is 35%. For those aged 45-49, the gap increases to a staggering 47%. This is a real issue that the Government and the pension industry and pension savers need to solve.
There are a number of reasons as to why there is a gender pensions gap. Perhaps most prominent is the inextricable link to the gender pay gap. For context, the median gender pay gap currently stands at 14.3%. To put simply, men tend to earn more over the course of their career than women, and therefore their pension contributions are typically higher as a result. Women are far more likely than men to take career breaks for child caring responsibilities, and therefore their ability to increase their earnings is affected.
Caitlin Southall joined Brandon and Sue on IFA Talk to discuss the gender pension gap – listen here.
The current auto enrolment system presents an imperfect mechanism for saving for retirement. The minimum earnings in a single role required to be eligible for auto enrolment fails to take into account those that may not be able to work full time, therefore not capturing those workers that need to satisfy childcare or caring responsibilities alongside their part time hours. The majority of workers captured in this eventuality are women. This means that more women are being essentially disregarded for workplace pension saving, thus widening the already problematic gender pensions gap.
Reformation on the auto enrolment system would be a great start in closing the gender pensions gap. By making the system more accessible, and taking into account those workers that may work part time would allow more women to save responsibly for their retirement. Of the 15.66m women in work over the age of 16, 5.92m were working part time, equating 38% of the adult female workforce. In comparison, only 14% of men work part time.
But auto enrolment isn’t the only answer to the gender pension gap problem. Of those that are eligible for auto enrolment, the gap still stands at 32%, implying that the main driver of the gap is pay disparity and career breaks.
There is also the issue of financial confidence that is a barrier to fighting the gender pensions gap. This was particularly prominent in the FCA’s Financial Lives Survey, which reports that 1 in 3 women have low financial confidence. Women are also almost twice as likely as men to have low financial capability (17% vs 10%). This message also played through in other areas of the report, with women less likely than men to know the cost of financial services and advice, and less likely to have lower financial resilience due to a lower level of savings than men.
When it comes to the state pension, women are 17% more likely to rely on the state pension as their male counterparts. We can assume that this is due to the lack of private pension wealth to supplement the state pension. Men are over one and a half times more likely to invest their money
than women. These are all worrying statistics and go some way to demonstrate why the gender pensions gap still exists and why it is as wide as it is.
Another issue highlighted in the Financial Lives Survey was around financial advice. Women are statistically less likely than men to seek financial advice. There might be a number of reasons as to why this is the case. Only 16% of advisers are women, and some female clients may be more comfortable to obtain financial advice from their own gender. Women tend to have lower financial literacy, so they may not feel comfortable to ask the right questions of advisers, or know where to start in getting advice. This may be the crux of the gender pensions gap, resolving educational barriers may make a positive impact on future generations.
The issues preventing the gap being narrowed or closed are systemic. Women have lower financial confidence, so early education is critical to supporting them to save towards their retirement. I am a big advocate in financial education in schools, providing information and key skills in financial matters, including pensions. Pensions are about planning. Enabling people to have the tools to take control of their own retirement is vital to closing the gap and also putting more people in better positions during their retirement. Through reforming and expanding the auto enrolment criteria, and education, women can at least be sighted to the impact of career breaks and the benefits that a private pension can bring when they come to retire.
Education would also help to overcome a further issue in terms of a generational barrier that we need to overcome. Men may have been perceived to have looked after household finances, leaving women to look after the household. However, times have moved on and more women are in work now than ever before. The gender pay gap is showing signs of narrowing, which theoretically allows women to contribute more to their pension. But we can’t rely on the pay gap to close the pensions gap on its own. The industry needs to do more in terms of education and support and recognition of the pensions gap, particularly when developing, marketing and amending products and services.
