Study shows large gender pension gap linked to private pensions

The private pension gap has narrowed considerably less than the state pension gap in the last decades, falling from nearly 60% for women born in the late 1930s to around 45% for those born in the early 1950s, according to a study by the Institute for Fiscal Studies.

Moreover, younger women are still less likely to save into a pension than men – 59% compared to 66% of men. This is likely to be due to fewer women working than men as 77% working men and women are saving into a pension.

The study found that on average across all working-age people, women had average total annual pension contributions of £2,600, compared with £3,400 for men. The IFS says that women contribute a higher proportion of their pay to pensions than men – 15% compared to 13% – but the difference is mainly due to the fact that women earn so much less than men, leading to poorer outcomes on retirement. The gap widens with age.

When it comes to participation in pension schemes, the IFS says sectoral differences are important. Women are more likely to work in the public sector where pension participation is high and average contribution rates much larger than in the private sector. In addition, only 10% of female workers are self-employed, compared with 15% of male workers, and less than one in five self-employed workers are saving into a pension.

However, in the private sector, women have had persistently lower workplace pension participation than men, although automatic enrolment has led to the gap narrowing slightly in recent years. There is no gap in the public sector.

In terms of the proportion of pay that goes to pensions in the public sector, there is a gap in average total contribution rates in favour of men which initially widens with age, reaching 2.5% of pay by age 40, but which narrows after age 50. Differences are much smaller in the private sector, with women having a slightly higher average total contribution rate up to their mid 40s, and men having a slightly higher rate after that.

While automatic enrolment has helped women, the £10,000 annual earnings threshold is more likely to affect them as they are more likely to work part time. The IFS says there is essentially no gap in pension participation between male and female employees earning over £10,000 per year. In the public sector, it says differences in contribution rates can be explained by differences in earnings and industry.

The report also shows a narrowing of the pension participation rate between male and female self-employed workers which stands at 6%. This is mainly due to a large fall in self-employed men paying into pensions – down from 54% in 1998 to 22% in 2020. The fall for women over the same period has been from 33% to 16%.  However, among those participating in a pension, self-employed women contribute as much as, or more than, self-employed men who have similar earnings.

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