Urgent action needs to be taken to address the UK’s gender pension gap, Legal & General had warned.
New research of more than 4.5 million savers in the UK shows little progress has been made since 2020, and in some age groups and sectors has deteriorated further.
Women are left with smaller pension pots at every stage of their career, with the situation worsening significantly as they approach retirement. The research, which analyses data from more than 4.5 million members across L&G’s defined contribution (DC) pension scheme clients, shows that women are always at a financial disadvantage, even at the start of their careers.
The initial gap of 16% widens as women reach their forties, accelerating to 31% as the impact of career breaks and unequal caring responsibilities begin to take effect. By the time people can take their tax-free cash at 55, the gap is over 50% and deteriorates further to 55% by retirement.
This new data for 2021 shows the gender pensions gap has decreased marginally across age ranges, but by only one percentage point for the start and end of women’s careers. On the current trajectory, women will still be retiring with vastly smaller pension pot sizes than men for many decades to come.
Retirement prospects still diverge starkly
L&G also analysed the size of the pension pots of more than 50,000 Britons who retired in 2021 and the picture remains just as stark as those yet to retire. On average, the size of a man’s pension pot at the point of retirement was £26,000 compared with just £12,000 for a woman. Whilst retirees are likely to have more than one pension pot from different employers, the gap is expected to be broadly similar for all pots.
Why there is an issue in the first place
There are many reasons identified for the gap, including the fact that women are still paid less and are less likely to be in senior leadership positions, resulting in lower pay and lower pension contributions. They are more likely to take career breaks for childcare or as an unpaid carer and are more likely to work part time or reduced hours, as well as self-identifying as having lower fiscal confidence.
The high cost of childcare in the UK* is a barrier to women returning to work after maternity leave, or returning full time, and the means test on benefits can be a driver for capping hours, particularly in certain industries. In addition, 900,000 women in the UK retire early each year due to Menopause, meaning women are leaving the workforce at the exact time when their earning potential is likely at its highest.
Reflecting on the challenges facing women who are saving for their retirement, Katharine Photiou, Commercial Director of Workplace Savings at Legal & General said: “There are many factors that have led us to this point but very few solutions offered. It’s time women stop being penalised for things outside of their control, like the high cost of childcare, or being paid less than their male counterparts.
“We know that women feel significantly less confident, and are more likely to struggle on knowing where to start, when it comes to making financial decisions. Industry and government must therefore work together to ensure education and engagement around savings and investments increase. For example, too few know about the flexibility that couples have in being able to contribute to their partners’ pension while they are on parental leave. This is something that can significantly reduce a women’s pension shortfall.”
Commenting on the need for cross-industry solutions to the gender pension gap, Stuart Murphy, Co-Head of Defined Contribution at Legal & General said: “These figures demonstrate the glacial pace of change on the gender pension gap, as well as the need for greater cross-industry collaboration between government, employers, pension fund providers and members to address the scale of the challenge.
“In our view encouraging full disclosure to highlight the scale of the issue is an important starting point. We are calling for full disclosure from companies and DC pensions providers to publicly share their gender pension gap so that we can better identify and fix this problem.
“We are also making a call for regulators and law makers to look at reform; including dropping the minimum age of auto-enrolment, abolishing the auto-enrolment minimum salary threshold and provide further support to help families with childcare costs.”