If we start with the gender pay gap, which is the difference between the average earnings of men and women, this will help us to understand the gender pension gap. Recently the Office for National Statistics (ONS) confirmed that the gender pay gap is reducing, albeit at a fairly slow rate.
What the gender pay gap isn’t about is equal pay. Equal pay is the legal obligation on an employer to give men and women equal pay for equal work. Having a gender pay gap does not necessarily mean that an employer has breached equal pay provisions.
Those employers that identify a gender pay gap are more likely to have underrepresentation of women in higher paid jobs, typically because a higher proportion of women than men are in more junior roles.
Within the world of pensions, we have our own issue - the gender pension gap. A gap between the average pension savings of women and men which currently exceeds the gender pay gap by some margin. When the average life expectancy of women is just under 4 years longer than men, you could argue that women will need more in retirement to maintain good financial wellbeing, not less, and therefore more needs to be done, and soon.
The UK’s private pension system is greatly aligned to paid work. Women are more likely to work fewer paid - and therefore pensionable - hours than men, due to part-time hours and career breaks, often to assume the lead share of caring responsibilities.
Some would argue that it’s a simple problem to fix and that women could choose to work longer or pay more into their pensions to make up for contribution gaps created through caring. Although these are solutions, they simply address the symptoms rather than challenging the root causes.
One of the challenges faced is awareness around the issue. I have spoken with several women in the pensions industry and include my own experience when I say that pension contributions were not at the forefront of my mind when deciding on how to structure my career, accommodate childcare and the desire, as a mother, to be present.
People of all genders need to retain the choice to take time off work to prioritise caring responsibilities over income today or pension in later life.
What employers can do is ensure that people have the information they need to make informed decisions about the effect that choice might have on their wider financial wellbeing, including their pension, not just their take home pay.
Employers and providers can also offer education which can support this, and there are several steps that women can be encouraged to take to help close the gender pension gap:
- If earning less than £10,000 understanding the options for joining the company pension scheme
- Reviewing National Insurance records to check entitlement to State Pension: individuals need a total of 35 years of National Insurance contributions and, in some cases, will have the option to apply for credits or pay to fill in any
Another area of consideration for an employer is the use of salary sacrifice for pension contributions. This results in pension contributions being maintained at pre-maternity levels throughout paid maternity leave. It would replace the current situation in which employee contributions fall to £1.56 per week in an automatic enrolment minimum scheme.
If it is feasible however that the most effective way to close the gender pension gap could sit outside of the pension scheme. Allowing the opportunity for career progression, making positive changes to the structure of parental leave benefits whilst still offering career flexibility, and more affordable childcare sit within the gift of both employers and government. This could help balance a rewarding career and caring for children by enabling caring responsibility to be equally shared.
When returning to work, a proactive family-friendly culture, with supporting policies is essential to avoid carers being held back.
If we have learnt anything from the last year of remote working in a pandemic it is that workers can be trusted to work anywhere, and this presents us with an opportunity to help encourage a more flexible work-life balance for all parents.
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Laura Stewart-Smith is head of workplace savings & retirement at Aviva
