Addressing career flexibility could help tackle gender pensions gap

There is an average gender pension gap of 40 per cent in the EU, according to research published by Mercer, measured by annual pension and based on Eurostat data.

There needs to be a focus on further education of women, preferably before they start to think about a career break, in terms of investment contributions and options

Lee Georgs, Redington

The research found that poor flexibility in the current pensions system, as well as career breaks and lack of confidence in retirement planning have all contributed towards this gender pension inequality.

The gap varies across different parts of Europe. While Lithuania and Denmark have gaps ranging from only 0-10 per cent, France and the UK have gaps of 30-40 per cent.

Use education and better comms

Speaking about the UK in particular, Eve Read, principal and head of proposition, DC and financial wellness at Mercer, said that the solution to plugging the gender pension gap is “multi-dimensional”. And while the gender pay gap is an important factor, it is not the sole cause of gender pension inequality, she said.

Read said that many women who have already retired are of a generation where they “have a reliance on male income being the primary provider” in the household. Lack of confidence in taking calculated risks and planning for retirement is resulting in poorer pension provision for women compared with men, she added.

Pensions communications for both men and women need to be more “simple, personalised and emotive, and we need to make sure that we enable people to take action off the back of them”.

Other solutions involve providing financial education and improving the current level of flexibility in the pension system to assist those working part-time or taking career breaks. But “it isn’t a simple fix — it will take time to resolve [and] the pay gap is a significant part of it”, she said.

Lee Georgs, director at consultancy Redington, also stressed the importance of “further education of women, preferably before they start to think about a career break, in terms of investment contributions and options”.

Career breaks still mainly taken by women

Daniela Silcock, head of policy research at the Pensions Policy Institute noted that “a lot of pensioners today grew up in a workforce that had a lot more gender division than what we have today”.

She said: “Back then, women would either not work as much, would work with lower pay, would work more flexibly [or] would work more part-time.”

However, Silcock acknowledged that “a lot of those trends are still going on”. While gender pay equality is improving, “there is still quite a lot of gender division around household responsibilities” from care and housework to financials, particularly among heterosexual couples over the age of 45. There is a trend for the men, rather than women, in such couples “to make overall, long-term big financial decisions”, she added.

However, attitudes are changing in some areas. For example, men and women under the age of 45 are much more likely to be managing finances together, and more women are beginning to take charge of household financial management, Silcock said.

This does not change the fact that many women still work part-time or take career breaks due to childcare, affecting their career and earnings trajectory. This may mean their earnings are below the auto-enrolment threshold.

Industry could be 'change agent' 

Employees currently need to earn at least £10,000 a year to be auto-enrolled into a pension scheme.

In 2016, the PPI published a report on the 'under-pensioned', which looked at pension inequality with regard to women, disabled people and people in ethnic minority groups. It showed that of about 13m employed women in the UK, 2.7m of working age earned less than £10,000 a year in all of their jobs, compared with only about 82,000 of roughly 13m employed men.

Silcock concluded that more women would be eligible for auto-enrolment if the earnings threshold were dropped.

Another suggestion, made by women’s charity the Fawcett Society, “is that if women take time off for care or work less, that their partner can actually contribute to their pension pot”, said Silcock.

Georgs also said that the pensions industry could “be a change agent for other industries” by addressing the inherent career flexibility that many women and men require.

For example, when employees take a break from their career, if there were options available for their pensions contributions to be taken over by their partner without tax penalties for doing so, “you would avoid the issue of the gap in pensions contributions during this period”.