Ahead of International Women’s Day tomorrow, Simplify Consulting’s Kirstin Brooks reminds us that when discussing financial equity, the gender pension gap can often get overlooked
On average, women live longer than men so require a more substantial pension pot to ensure that they have enough funds to cover their life expectancy.
Unfortunately, data shows that this is not just a problem for older married women with smaller pots. The gender pay gap already starts to appear in the 30-44 age group, which further highlights the need for earlier intervention. Kirstin Brooks, Business Support Manager at Simplify Consulting looks into the reasons for the gap and what the industry can do about it.
Mind the gap
There is an array of reasons for the gender pension gap.
Firstly, caregiving responsibilities has played a big part. In the past women have tended to be the main caregivers supporting their families, resulting in working less hours and saving less for their pension.
Families are also in the position that due to high childcare costs, women are not returning to work as their wages would not cover the costs. Women typically spend 10 years away from the workforce, to start families, care for children and other relatives.
Secondly, wage disparities have set women back. Despite progress being made in closing the gender pay gap, there are still disparities in salaries. Women still earn less than men and this is still the case in the 30-40 age bracket, therefore the amount that women are contributing to their pension pot is not equal to the amount that men contribute.
Thirdly, pensions are excluded in the majority of divorce settlements. Couples tend to settle outside of court and off set the value of pensions against other assets such as the family home. This can result in less of a share in assets as some pension schemes are more valuable than the property. With the no-fault divorces, this could leave less time for parties to seek legal advice, therefore resulting in a disadvantage. It is also the case that many women feel that they cannot afford legal advice but could be losing out on more by not taking the advice. Some Solicitors offer free appointments that could help to understand legal and financial positions. Employee Assistance Programmes often offer financial and legal advice.
What can industry do to bridge the Gender Pension Gap?
There are some legislation changesthat could be made – which includes the removal of the Lower Earnings Limit (LEL) will result in lower-income earners being automatically enrolled into pension schemes. This will allow over 3 million women to start contributing to their pension with employer’s matching the contribution.
Elsewhere, changes could be made to joint and survivor annuities. Women typically live longer than men and considerable amount have small pension savings. For some couples joint and survivor annuities would ensure surviving spouses continue to receive a payment, which can provide peace of mind. Couples can also structure annuities to provide a variety of payout options helping to manage future plans. However, joint and survivor annuities can be complicated, with a low return so getting Financial Advice would be beneficial.
Tackling issues like the gender pension gap needs firms to get behind them. Scottish Widow’s Retirement 2023 Report showed that 10% of young women in their 20s have opted out of their pension and are missing opportunities to save early. By the age of 22, 19% of men are paying into their pension compared to 14% of women.
One factor impacting this is the cost-of-living crisis but also some are preferring to spend the money now. Pension providers have started advertising on social media platforms like Tiktok to raise awareness to younger customers and encourage them to start paying into a pension earlier, particularly targeting young women.
Continue contributions during a career break could help tackle the gender pension gap as well. Continuing payments during a career break or increase contributions when returning to work to ensure that the deficit has been filled. A large majority of people are not aware that they can contribute to someone else’s pension regardless of whether they are working or not.
For non-earning spouses a person can contribute up to £2,880 and if working contributions can be made as long as they remain below their annual allowance. Using this option can help to fill the gaps in women’s pension contributions helping to increase their pension pot.
Policies
There are also a number of policies that firms could instigate to bring about change. Regular audits of salary sacrifice policies and processes: Employers should pay particular attention to areas where employees encounter issues during family leave, especially for maternity. Utilise family friendly policies such as flexible working, support the equal share of childcare through parental leave, shared parental pay and additional childcare provision. Employee Financial Education: Employers should educate employees on the benefits of pension contributions, especially highlighting the long-term advantages for women. Offer Financial advice and support through Employee Assistance Programmes.
Conclusion
Our industry can all play a part in reducing the Gender Pension Gap; women can take a more proactive step in making informed choices for their future, employers can offer more guidance/support through family friendly policies, the government can introduce impactful legislation changes and pension providers could market themselves and offer incentives to younger female audiences,
As we approach International Women’s Day –let us as an industry make a change to bridge the gap.
