The gender pensions gap – can it be closed?

  • Women in their late 50s have around 50% less pensions savings than men
  • Women will experience lower standards of living in retirement on average than men and a higher chance of suffering deprivation or poverty in retirement
  • Only 24% of young women are very confident in managing financial decisions compared to 48% of young men
  • The DCIF calls on DC pension schemes to review their approach to de-risking, cultivate more diverse trustee boards, better tailor member communications and provide more education on risk and retirement planning
  • Introducing policy changes such as allowing bridging contributions, better financial education in schools, and easier pot transfers could also have significant benefits

A Briefing Note published today by the Pensions Policy Institute (PPI) and sponsored by the Defined Contribution Investment Forum (DCIF) reveals that women in their late 50s have around 50% less pensions savings than men. As a result of this gender savings gap, women will experience lower standards of living in retirement on average than men and a higher chance of suffering deprivation or poverty in retirement.

The gender pensions gap – can it be closed?, outlines the factors which contribute to the gap in pension savings between men and women and looks at how these factors may change in the future. The Briefing Note acknowledges that the introduction of auto enrolment is bringing more women into pension saving, and goes on to suggest possible investment and policy solutions to help close the gap further and more quickly.

Vivek Roy, the DCIF’s chair, said, “While the gender pay gap is frequently in the public eye, fewer people are aware that a gap also exists between men and women’s pension savings. We are delighted to have worked with the Pensions Policy Institute to draw attention to this important issue. This paper considers how the gap has arisen and considers how to close it. The good news is many more women are saving into pensions as a result of auto enrolment. However, the industry can take some important steps to close the gap, such as making sure that women are well-represented on decision-making boards, meaning that their vital input will filter into every stage of the savings journey.”

The main driver behind the gender pensions gap is the result of differences in working patterns, as women are far more likely than men to leave the labour market or work part time in order to provide care to children or other family members. In 2018, 1.81 million women were economically inactive because they were looking after family or home, compared to 223,000 men.

Other significant factors are the gender pay gap and behavioural factors. Women are less confident, on average, about making financial decisions. Only 24% of young women are very confident in managing financial decisions compared to 48% of young men. Women are also more risk averse than men and are more likely to choose “safer options” when given financial options. An additional factor is that women over State Pension age currently receive less from the State Pension than men.

Women tend to earn less than men and are less likely to be promoted; the ONS’s 2018 Gender Pay Gap report revealed a gap of approximately 18% less than men’s. Women who take time out are less likely to experience the same pay progression rates as men and are more likely to work in lower paid jobs.  Women are also less likely to make pension contributions for years when they are not working, so they find it even harder to build up adequate retirement savings.

Daniela Silcock, head of policy research at the PPI, said, “While the gap between men and women’s pension incomes is narrowing due to policy and demographic changes, a pension gap is likely to remain unless other structural changes take place. Potential levers involve both government and industry, and range from restructuring investment offerings to better account for women’s higher life expectancies, to changing the makeup of trustee boards in order to ensure that the needs of all vulnerable groups are given higher prominence.”

The report finds that some things are improving, meaning that the pension savings gap is slowing reducing and is expected to continue to decline. Younger women tend to have higher financial confidence and capability than older generations, and their risk tolerance is growing, migrating closer to men’s. Fewer women are having children and those who do so are more likely to stay in work or return to work. Women in work are more likely to join pension schemes and their employment rate is increasing. The introduction of auto enrolment is also bringing more women into pension saving.

The report suggests possible policy solutions to help close the gap, such as allowing increases in contributions or bridging contributions by family members when a woman is out of the work force. Simpler pension pot transfers and introducing financial education in secondary schools would also help build confidence about making financial decisions.

From an investment perspective, DC pension schemes could help close the gap through a number of steps. Firstly, they could review their de-risking strategy, which have largely been designed around a traditional, linear (i.e. male) working and saving pattern. Increased investment in alternative assets may negate the need for significant de-risking. Pension investment options could take more account of longevity risk – women’s greater life expectancy of around two and a half years longer than men means that a woman either needs to draw a lower income or have saved more than a man.

Communication materials could be better tailored to women’s needs and attitudes to risk and improved diversity on pension trustee boards would help to further ensure the needs of all members are properly considered.

The DCIF’s vice-chair, Hilary Inglis, said, “The traditional linear working pattern no longer reflects the reality of our working lives, particularly for women, and now also the next generation of savers who favour multi stage lives and careers. It is paramount that both scheme trustees and investment managers account for this changing working pattern in the way they communicate with members, but also in their approaches to de-risking as members near retirement. It is positive to see that improvements are being made, but there remains much to be done to ensure the pensions pay gap is reduced further.”

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