Normalising pensions talk

Scottish Widows recently published a report on the gender pension gap [https://www.workingmums.co.uk/gender-pension-gap-narrows-but-theres-still-a-long-way-to-go-to-equality/], which showed many more women and men are saving enough money for their pensions, but women will on average have to keep earning until they are 100 to equal men’s pensions earnings.

While the best way to address this is a long-term approach which targets people at the start of their careers, what can you do if you are reaching the end and facing a pension deficit?

Gender pension gap

Jackie Leiper, Managing Director, Workplace Savings at Scottish Widows, says things have been improving in recent years, with the most significant factor in narrowing the gender pension gap being auto-enrolment in 2013, although it took until 2016 for it to roll out across the country, having started with the larger employers. Jackie says it has been hugely successful because it has reached even the smallest employers and has brought 10 million more people into workplace savings schemes.

Scottish Widows would like to see the earnings threshold of £10K removed. It argues that the earnings threshold can exclude part-time workers – 75% of whom are women – and it means that people who have a number of part-time jobs which individually bring in less than £10K in order to get flexibility and to avoid high childcare fees do not qualify for auto enrolment.

Jackie says women drop their pension contributions or stop paying in at all when they have children if they take time out or reduce their hours and that has an impact on their pension contributions which is cumulative. The gender pay gap, for instance, widens after women have children. Moreover, it’s not just their pension contributions that they lose. Many employers have schemes whereby they match employee contributions.

Greater openness

Jackie would like to see more open discussion about pensions in the workplace, particularly at crucial stages in a person’s life, and in the home. When it comes to the home, Jackie says that not many women discuss their pensions with their partners, she says. “We balance other household bills together, but men rarely cut back their pension when children are born,” she notes. Moreover, she adds, pensions are rarely taken into account in asset division on divorce. “We recommend that pensions should be split on divorce. A lot of women over 50 find themselves with virtually no pension provision if they have taken time out to have children and then divorce.” Jackie says that pensions are not well understood in the legal system and that more work needs to be done on this.

If people checked in on their pension planning regularly and got an idea of how much their retirement income might be, it would help people to budget better and set better financial goals, says Jackie, adding that open banking has made this much easier as you no longer have to be with just one provider. “Really good financial advice should be holistic and family related and pensions should be part of that,” she states. “Pensions schemes were quite paternalistic in the past. Now there is more personal responsibility. That brings more freedom, but puts more onus on us as individuals.”

Scottish Widows is keen to see reform include self employment. They are calling for the self employed to be incorporated into the auto-enrolment scheme as a priority.

The future for pensions

So how has Covid affected pensions and what does the future hold? Jackie says Scottish Widows expected to see older people cashing in their pensions over the last year because of financial difficulties, but that hasn’t happened. She thinks this is because of the volatility of the markets. What they have seen, however, is more discussion around fund performance as people seek to understand how their pension is performing, which she says is healthy.

On the provider side, she says that there is an emphasis on simplifying the pensions system – the government plan to bring in a pensions dashboard, for instance, which will allow people who have multiple jobs in a lifetime to see how their different pension schemes are working – and on communication. Scottish Widows is using technology to engage more with people about their pensions, for instance, through gamification and technology that allows you to see ‘the future you’ in various financial scenarios. There is also an interest in using nudge theory to prompt people to think about their pensions in the same way they think about their everyday finances. “It’s important to normalise pensions,” says Jackie.

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