Levelling the gender pensions playing field

The gender pensions income gap is more than double the gender pay gap: 40.3 per cent compared to 17.3 per cent1.

The problem is many women don’t know about this until it hits them in retirement. No-one tells them2.

Women tend to get a raw deal

We know through the work that we did in our report, The Gender Pensions Gap: Tackling The Motherhood Penalty, that there are four areas of real concern.

Firstly, many women take career breaks to have children. My colleague Jenna Gadhavi wrote recently about her own experiences of working part time, and the impact this has had on her ability to save. Childcare can be expensive3, and many mums can’t afford to go back to work.

Secondly, it is well known that, on average, women get paid less than men. That gender pay gap means lower pension contributions – and less income in retirement.

Third, too few women4 qualify to be in auto-enrolled company pensions, thanks to inflexible rules.  They may have a number of jobs that flexibly fit around their caring duties but if each pays less than £10,000, they will miss out of being automatically placed into their employers’ qualifying pension schemes.

Lastly, one of the benefits of a workplace pension pot is tax relief. But up to 1.75m5 people, most of them women, won’t get this because of the way their employer claims tax on net pay. This is a glitch in the pension rules and as such we’ve been calling on the government to fix this anomaly for many years.

All of this is made worse for women because savers in general tend to be unaware of how much they will need to last through retirement. Our research report, New Choices, Big Decisions – 5 Years On, found that people leave retirement planning until late – often too late.

Fixing the problems

We’ve recommended that the pension industry (and that includes us) do more to engage with women in their mid-40s and beyond who work part time. If we can all help women understand the long-term effect reduced pension contributions have on their available income in retirement, they will then have the knowledge to make their own informed decisions.

But better engagement is only part of it. The government must step up by supporting women who might want to return to jobs or work more hours once they have children. They can do this through bigger grants for local authorities to provide greater funding for good quality pre-school childcare. They can also abolish the net pay anomaly, to help those 1.75m low earners receive the much-needed tax relief to bolster their pensions savings.

And then there are other technical things to fix, like bringing more lower-paid workers into workplace pensions – three-quarters of them women – by cutting the yearly auto-enrolment earnings trigger to £6,240. Our 2019 report into the issue also recommends that consideration should be given to extending state pension carer credits to auto-enrolment. There’s much to do.

The gender pensions income gap can only be bridged if both policy makers and the industry take decisive action and with speed.

To find out more read our report, New Choices, Big Decisions – 5 Years On.

1 Based on 2018/19 figure: https://prospect.org.uk/article/what-is-the-gender-pension-gap/#:~:text=The%20gender%20pension%20gap%20is,gap%20that%20year%20(17.3%25).

2 https://thepeoplespension.co.uk/wp-content/uploads/New-choices-big-decisions-5-years-on.pdf

3 https://ec.europa.eu/info/sites/info/files/european-semester_thematic-factsheet_labour-force-participation-women_en.pdf

4 https://thepeoplespension.co.uk/wp-content/uploads/Media_gender-pensions-gap_media-brief_20200915_vf.pdf

5 https://thepeoplespension.co.uk/wp-content/uploads/Media_gender-pensions-gap_media-brief_20200915_vf.pdf

Educating mums on the cost of part-time working could oust pension regrets

When I first started working in the pensions industry almost nine years ago, pre-children and in a full-time position, I was blissfully unaware of what the gender pensions gap was.

Fast forward to last year, when I returned to work following the birth of my second child, acutely aware that my decision to work part-time will directly impact my retirement savings. I know about this because I work in the pensions industry and I have a greater than normal interest in my retirement and how I’ll fund it. Many other women aren’t so fortunate.

I’ve chosen to work fewer hours to allow me to spend some time with my youngest daughter until she starts school in a couple of years, and I’m not alone. So many women choose to do the same, others have no choice but to work part-time due to childcare or the lack of.

There is a problem, however, which lies in the lack of information surrounding the consequences of these decisions, which can come to light long after our little ones have flown the nest. It’s a contributing factor to the gender pensions gap, a difference in the amount saved which means that the typical female pensioner is £7,000 a year worse off than a man the same age.

The research New Choices, Big Decisions – 5 Years On1 shows that part-time female workers in their forties and fifties would benefit from targeted communications from pension companies explaining what the impact of working either a day or two extra a week would have on their pension savings.

The ground-breaking study by the consultancy Ignition House, who interviewed volunteers at length about their attitudes and behaviours towards retirement, showed that some of the women interviewed hadn’t fully understood what the implications of working part-time would be on their pensions savings. Many had continued to work part-time once they’d the opportunity to increase their hours again. In fact, of those interviewed, women were more likely than their male counterparts to be in part-time work both at retirement and in the lead up to it.

The report is the latest in a series that examines the impact of Pension Freedoms since 2015. It recommends that workplace pension providers should explore the possibility of communicating with female members who work part-time, in their mid-40s and beyond to explain the ramifications of not having up to an extra two days a week of work would have on the size of their pension pot.

It’s clear that the gender pensions gap cannot be bridged by the pensions industry alone. It requires the government to do more to enable women to return to work or work more hours once they have children. Enabling the provision of better, more affordable childcare would be a huge step here, but I’m under no illusion of just how big a task this would be.

Do I think the pensions industry could do more? It’s not unreasonable to ask whether providers should be looking at ways in which they can communicate to female workers how they could increase the size of their retirement pot and remind them of the impact of extended periods of part-time working.

I’ll be upping my hours again once my children are older, many others will make the decision not to. Either way, the industry owes it to all women to enable an informed decision so that when they do retire, they have no regrets.

Read more

Read the report, New Choices, Big Decisions – 5 Years On.

1 https://thepeoplespension.co.uk/media-centre/policy-research/new-choices-big-decisions-5-years-on

Jenna Gadhavi is a former Policy & External Affairs Business Manager for B&CE.

Impact of part-time work on women’s pensions – study

More must be done to ensure women choosing between full and part-time work are made aware of the potential impact on their pensions

Part-time female workers in their forties and fifties could benefit from information from pension companies explaining what the impact of working either a day or two extra a week would have on their pension savings, according to latest research.

Findings contained within the New Choices, Big Decisions study1, which was commissioned by leading workplace pension scheme The People’s Pension2 and asset manager State Street Global Advisors3, provides further evidence of the impact of the gender pensions gap4. Responsibilities, such as looking after children, meant some of the women interviewed for the study had reduced their working hours early in their careers, and retained this work pattern after their circumstances changed enough for them to consider increasing their hours.  Of those interviewed, women were more likely than men to be in part-time work both at retirement and in the lead up to it.

The report recommends that the workplace pension industry should explore the possibility of getting information to women who work part-time, in their mid-40s and beyond, setting out the ramifications of not having up to an extra two days a week of work on the size of their pension pot.

Calculations by The People’s Pension reveal that a woman who chose to return to full-time work aged 42 after 14 years of working part-time could be as much as £1,224 a year better off in retirement than a woman who stopped working at 28 and continued part-time hours throughout her career6. The new state pension will provide £9,110 a year in retirement.

Phil Brown, the director of policy and external affairs at B&CE, the provider of The People’s Pension, said: “This latest research is further evidence of just how stark the gender pensions gap is. The New Choices, Big Decisions study has given us genuine insight about how people save and plan for their retirement and there are sobering examples of women who now regret that they didn’t fully consider what impact that sustained periods of working part-time would have on them in retirement.

“We in the pensions industry could look to do more to see how women might receive information about how to increase what they save.”

“But it’s important to recognise that the gender pensions gap cannot be bridged by individuals acting alone, even if they get more information from the pensions industry, as it requires the Government to do more to enable women to return to their roles or work more hours once they have children. One of the main ways of doing this would be the provision of better, more affordable childcare.”

ENDS

Women’s earnings more likely to be impacted by children

Women’s earnings are more than twice as likely to be affected than men’s after having children

Further evidence of a ‘Motherhood Penalty’ hitting women’s pension savings has been revealed in new research by The People’s Pension, which shows that women’s earnings are twice as likely to be affected after having children than men’s, which can have a lasting impact on their pension savings.

The poll of more than 2,400 people across the UK, conducted by YouGov, found that since having their child(ren):

  • Four-in-ten women (43 per cent) reduced their working hours compared to less than one in 10 (nine per cent) men.
  • A third of women (31 per cent) stopped working for a period compared with just 4 per cent of men.
  • Only a quarter of women (24 per cent) said that their pay hasn’t been adversely affected compared to almost two thirds of men (63 per cent).

With one in five women (20 per cent) stopping or decreasing their pension savings, and only four per cent of women increasing their pension contributions, it appears unrealistic to expect women who are experiencing a significant drop in their household income while they care to, at the same time, pay more into their pension.

The People’s Pension is calling on the next Government to accept the principle that caring is an economic activity which should attract workplace pension contributions and address the crippling costs of childcare through better funding.

Commenting, Gregg McClymont, the director of policy at The People’s Pension, said:

“It’s clear that women’s working lives, much more than men’s, are dramatically affected after having children, causing a knock-on effect on their current and future finances.

“Voluntary additional pensions provision is unrealistic for most women at a time when household finances are especially stretched. But without those pension contributions many women’s pension pots fall behind men’s and never recover the lost ground. That’s why we’re calling on the next government to accept that raising a family is an economic activity that deserves workplace pension contributions and to address the cripplingly high costs of childcare in the UK.”

The survey also found that the majority of workers are ill-prepared for retirement, as nearly two thirds of people (64 per cent) don’t think they’re saving enough.

To afford life in retirement, six in 10 people (61 per cent) intend to rely on a private or workplace pension; a third of people will carry on working part-time (33 per cent) or use their savings (35 per cent); two in 10 people (21 per cent) are reliant on their partner’s pension while others are depending on inheritance (18 per cent), downsizing their home (17 per cent), or winning the lottery (five per cent).

Gregg McClymont added:

“While automatic enrolment has got off to a great start it’s clear that millions of people still aren’t saving what they need to. We’re calling on the next Government to build on the success by helping workers to save more and ensure that millions of people aren’t unnecessarily excluded from auto-enrolment.”

ENDS

Childcare costs widen gender pensions gap

How fair a society do we live in? It’s a question that’s often asked and, depending on your world view, the answer often differs wildly.

Decision makers often like to tell us that we have never had it so good but even the best poker player would struggle to keep a straight face while claiming that we are all dealt the same hand.

One area where there is still much work to be done is the divide between the sexes. Despite talk that the gender gap is getting that much smaller, the evidence is clear that far more is needed to be done before the balance is truly redressed.

The gender pensions gap is a prime example of the stark gap; according to research by Prospect the union, the average female pensioner is £7,000 a year worse off than a man her age1. Changes to pensions policy will help but if we’re going to really tackle pensions inequality head on, then we really must look at the ‘motherhood penalty’ women face when they have children.

Our research found that after having children, nearly half of women reduced their hours, more than a third left work altogether and more than one in five returned to work in a lower grade or lower paid role.

According to a YouGov survey commissioned by The People’s Pension, after having children nearly half of women (44%) reduced their hours, more than a third (36%) left work altogether, while more than one in five (15%) returned to work in a lower grade or lower paid role.2

These changes in their working lives have a significant impact on a woman’s ability to save for a pension at the same level as their male counterparts. It’s hard to avoid the unpalatable fact that women are more likely to need to stop or dramatically reduce their pension contributions, meaning they may miss out on employer contributions and lose the investment gains their contributions would accrue.

While many women choose to reduce their hours or stop working because they want to spend more time with their children, many said it didn’t make financial sense to keep working and pay for childcare or they couldn’t afford childcare. Almost four in 10 women (38%) who returned to work on reduced hours after having a child would have increased their hours if childcare was more affordable.

We’re calling on ministers to redress the balance by recognising caring as an economic activity which should attract workplace pensions contributions from the Department of Work and Pensions as well as covering the real cost of the guaranteed 30-hours per week childcare for all three and four year olds with a single, specific earmarked grant.

It must also be remembered that workers who earn more than £10,000 from one job are automatically enrolled into a pension, which excludes many part-time workers. Reducing the auto-enrolment eligibility threshold from that figure to the National Insurance trigger of £6,240 would create 1.3 million savers – two thirds of whom would be women.2

We have been waiting long enough for a timetable for the removal of the lower qualifying earnings band, as recommended in the Automatic Enrolment Review of December 2017. This would mean that all those automatically enrolled contribute from the first pound of earnings, rather than the current figure of £6,240.

This would also mean all those earning below the earnings trigger who opt into auto-enrolment would be entitled to an employer contribution.

While we’re on the subject of government promises, before the last election, the Conservatives made a manifesto pledge to look into the ‘net pay anomaly’, which means that 1.75 million workers, three quarters of whom are women, miss out on pensions tax relief, which worked out over a career amounts to an eye watering £8,0003.

The list of demands currently placed before our decision makers is as long as it ever has been in recent history but we must not allow potential reforms that make life fairer for more than half the population to be kicked into the long grass.

Read more

Read more and download our full research report on the gender pensions gap.

Childcare widening gender pensions gap warns provider

Childcare costs widening gender pensions gap warns The People’s Pension, as almost four in 10 women would choose to work more if childcare was cheaper

The People’s Pension1, a leading not-for-profit pension provider, has warned that childcare costs are widening the gender pensions gap, as new research finds that almost four in 10 women (38 per cent) working part-time would choose to increase their hours if childcare was cheaper2.

The gender pensions gap is currently more than double the size of the total gender pay gap with the average female pensioner £7,000 a year poorer than her male equivalent.3

In a new report, ‘The Gender Pensions Gap; Tackling the Motherhood Penalty’, The People’s Pension highlights that while changes to auto-enrolment pensions are needed to ensure lower earners or part-time workers – the majority women – aren’t penalised by the current policy, an inescapable root cause of the gender pensions gap is the ‘Motherhood Penalty’ women pay when their children are born.

The People’s Pension’s survey of 2,000 mothers across the UK, carried out by You Gov, found that after having children, nearly half of women (44%) reduced their hours, more than a third (36%) left work altogether and more than one in five (15%) returned to work in a lower grade or lower paid role.4

These changes in their working lives have a significant impact on their ability to save for a pension at the same level as men; women are likely are likely to stop or significantly reduce their pension contributions, meaning they may miss out on employer contributions and lose the investment gains their contributions would earn.

While many women choose to reduce their hours or stop working because they want to spend more time with their children, the survey found that:

  • Of those that left the workforce altogether, more than four in 10 (43 per cent) said it didn’t make financial sense to keep working and pay childcare, while three in 10 (29 per cent) said they couldn’t afford suitable childcare5
  • Of those that reduced their hours or role after having a child or children, more than a third (36%) said it made more financial sense to work part-time than pay for childcare, while almost a quarter (23%) couldn’t afford suitable childcare6
  • Almost four in 10 women (38%) who returned to work on reduced hours after having a child would have increased their hours if childcare was more affordable2

Sam, 32, from Northamptonshire has three children under the age of eight and gave up work when her eldest was born.

“I gave up my job working in a supermarket as the cost of childcare would have been far more than my wages. I haven’t worked since my son was born – with my husband the sole earner – as we were better off with me at home. I’m at a point now, with two of my kids in school, where I want to go back to work but finding something that makes sense financially, with hours that work for us, is really difficult.”

Childcare in the UK is more expensive than anywhere else in Europe7. Analysis by The People’s Pension suggests that a woman in London with a child under two, who earns the median full-time income, will pay three-fifths of their after-tax earnings (60 per cent) on childcare, commuting and associated expenses, reducing take home pay to £9,700 per year or a little over £800 per calendar month. Outside of London the numbers aren’t much better with a woman on the median full-time salary paying 44 per cent of after-tax income in childcare costs, leaving her with around £13,000 a year to live on. 8

Commenting, Gregg McClymont, director of policy at The People’s Pension and former shadow pensions minister, said:

“The gender pensions gap is stark. By the time the average woman reaches retirement, the size of her pension pot will only be a fifth of that of a man her age. Women are getting short-changed on pensions for several reasons – not least because of the caring responsibilities they tend to take on across their lifetime.

“To look after their children, women often reduce their working hours or stop working altogether and their rates of pay and potential for progression can be unfairly affected, all of which mean their potential pension savings take a hit.

“Of course, many women choose to reduce their working hours or leave their job because they want to spend more time with their kids, but our research is clear – the cost and availability of childcare is a key factor for many women. If we’re going to tackle pensions inequality, not only are changes to auto-enrolment required but better provision of affordable childcare is a must to enable those mums that want to keep working or work more hours, to be able to.”

To help reduce the gender pensions gap, The People’s Pension is urging the government to consider measures to improve childcare provision across the UK and ensure women aren’t penalised by current pension policy.

These measures include:

  • A single, specific ear-marked grant to local authorities to cover the real cost of the guaranteed 30-hours per week childcare for all 3- and 4-year olds
  • Cutting the required earnings to be eligible for an auto-enrolment pension to the primary National Insurance threshold to bring in half a million new pension savers – three-quarters of whom would be women
  • Bring quality childcare back to UK high streets by offering imaginative schemes to providers willing to fit out vacant shops and by making private nurseries exempt from business rates
  • Abolishing the net-pay tax quirk to ensure 1.75m low earners, the majority women, receive much-needed tax relief through auto-enrolment that they currently miss out on
  • increasing the maximum amount of childcare costs paid for under Universal Credit to ensure parents are better off for every extra hour worked and switch to upfront payments for childcare so that parents can afford to begin work
  • extending the existing system of state pension carers credits to auto-enrolment reducing the pensions gender gap in auto-enrolment savings

For Keziah, 37, from Leicestershire, if it wasn’t for family support, she wouldn’t have been able to continue working after the birth of her daughter as childcare cost more than she earned.

“As a single mum and the sole earner in our house I had to keep working full-time in order to pay our bills. Thankfully childcare wasn’t a cost I had to juggle as my mum looked after my daughter while I was at work. I’d already had to move to a different job and take a pay cut to allow me to balance parenting and work, and without mum I would have had to give up my job altogether as nursery fees cost more than I earned at the time.”

ENDS

The gender pensions gap: tackling motherhood penalty

The gender pensions gap – the inequality between men and women’s pensions – is more than double the size of the total gender pay gap, with the average female pensioner is £7,000 a year poorer than her male equivalent.

Our new report, ‘The gender pensions gap: tackling the motherhood penalty’, highlights that childcare costs are widening the gender pensions gap, with almost 4 in 10 mothers who reduced their working hours after having a child, saying they’d work more if childcare was cheaper.

Our survey of 2,000 mothers across the UK, with children under the age of 10, carried out by YouGov, found that after having children:

  • nearly half (44%) reduced their hours
  • more than a third (36%) left work altogether
  • more than one in five (15%) returned to work in a lower grade or lower paid role.

These changes in women’s working lives have a significant impact on their ability to save for a pension at the same level as men; women are likely to stop or significantly reduce their pension contributions, meaning they may miss out on employer contributions and lose the investment gains their contributions would earn.

While many women choose to reduce their hours or stop working because they want to spend more time with their children, we found that the cost of childcare played a key role in women’s decisions.

Download ‘The gender pensions gap: tackling the motherhood penalty’ report