Gender pension gap under the microscope

Women are struggling to keep up with men in the UK when it comes to saving for their retirement, with the latest figures showing the gender pension gap stands at 37.9%.

The gap was previously 40.3% in 2019, but had previously risen for two years in a row. Prospect, which publishes an annual analysis of the gender pension gap, has written to Pensions Minister Guy Opperman calling for him to look at the problem and for government to start taking a lead.

As well as calling for government to start reporting on the gender pension gap, Prospect has outlined actions the government could take immediately to start addressing the issue, such as abolishing the £10,000 earnings trigger for auto-enrolment [AE],  reducing the postponement period for auto-enrolment from three months to one month and
phasing in increases to total and employer contributions on a matching basis between employees and employers.

The figure comes as research from Aviva has found the Gender Pension Gap begins to widen significantly from the age of 35.

Based on the workplace pension employer and employee contributions of just over two million savers and retirees, Aviva says the gap between men and women’s pension contributions for 35 to 39 year olds is 18%. It then increases to 23% for 40-44 year olds and 29% for 45-49 year olds. It then stretches to 35% for 50 to 54 year olds.

Aviva says the amount paid in contributions has a big impact on what is received at retirement with part-time working having a significant impact due in part to the thresholds for AE.

For instance, it says a person earning £30,000 opting to reduce their hours by 40% would see their pay reduce by 40%. However, because of the lower qualifying earnings threshold (LET) under AE, their pension contributions would reduce to around 50% of their full-time value. A worker earning £20,000 would see their pension contributions reduce by over 58%.

Emma Douglas, Director of Workplace Savings & Retirement said: “Pension contributions are unlikely to be a deciding factor when considering whether to work part time. What is important is that people understand the long-term impact on their pension when they are making that decision. This is crucial to good financial planning. Some people might consider upping their pension contributions, but this would have to be carefully balanced against disposable income. Another option some parents may consider is sharing the caring responsibilities to help spread the long-term financial impact.”

Aviva is calling on the Government to outline a roadmap for the removal of the lower earnings threshold for AE, which has recently been frozen, so that employers and employees can plan ahead.

It says abolishing the lower qualifying earnings threshold would increase pensionable pay by up to £6,240 per year and total pension contributions by £9.60 per week for everyone who earns more than £6,240 a year. This could mean up to an extra £115,700 in pension pots at retirement.

Aviva has also outlined other ways to close the gender pension gap, including encouraging part-time workers to increase their monthly pensions contributions, encouraging those who earn less than £10,000 per year to speak to their employer about their options for joining their company pension scheme, advising couples to discuss who would be better to work part time based on earnings and pensions contributions and starting saving for retirement as early as possible.

*WM People has produced a free e-book on how employers can tackle the gender pension gap. More details here.

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