Master trust Now Pensions caught the eye in 2024 with the remarkable assertion that, in order to earn the same pension as an average man, a woman would have to start work at age three.
Career breaks, part-time work, and caring responsibilities all contribute to women earning less during their working lives – and saving less for their retirement as a result. This has led to women making up two-thirds of pensioners living in poverty, according to Now Pensions.
Since the master trust’s 2024 report, more research has underlined the scale and seriousness of the gender pensions gap. A Legal & General (L&G) study last year found that the average pension pot for a woman aged over 50 was £39,654 – less than half the average pot size of £84,205 for men.
Scottish Widows reported last year that career breaks were contributing to one in three women facing poverty in retirement. The pension provider reported that, by age 55, one in four women will have been out of work for more than five years, which could result in a £70,000 hit at retirement.
When factoring in race, too, the gap becomes even bigger. A separate L&G report in 2023 found that non-white savers typically had an average pension pot worth less than half that of white British people, while People’s Partnership calculated that the “ethnicity pension gap” stood at 24.4% in 2018.
Narrowing the gap
Despite the stark picture painted by this data, work is underway to address the savings shortfall. Last month, the government announced that it was bringing in new rules for the Local Government Pension Scheme to support women, who make up around three-quarters of the scheme’s membership.
Changes include making additional unpaid maternity leave automatically pensionable, as well as shared parental leave and adoption leave. Unions have welcomed the changes and urged the government to roll them out to other public sector pension schemes.
A new report published last week by Independent Governance Group (IGG), LCP, and Smart Pension outlined improvements to the financial prospects for non-white women but called for the industry to pay closer attention to this part of the population.
“There is a growing need to engage these communities even more closely to ensure their incredibly valuable contribution is properly rewarded in their participation in workplace pension schemes.”
Bahea Izmeqna, Smart Pension
The report said the intersection of the gender and race pension gaps was a “significant and growing issue” as approximately one in seven people in the UK were women from black or Asian backgrounds.
Relative disadvantages for these people are beginning to reduce, the report said, as younger women are attaining higher-level qualifications, are more likely to be in full-time work, and are aspiring to be financially independent.
The research found that, while there were knowledge gaps in relation to retirement saving, many women were keen to know more and would likely engage more with their pension if they had a greater understanding.
Priti Ruparelia, head of DC at professional trustee firm IGG, said the pensions industry needed to embrace a “more nuanced approach” for non-white women to account for “cultural and social differences”.
She added: “There is a strong desire for accessible information, and we must capitalise on this by developing new, innovative and thoughtful ways of reaching these communities – a need underscored by this research, which shows a real shift as more women take ownership of their own retirement outlook.”
Smart Pension’s Bahea Izmeqna, chief product officer, added: “Black and Asian women are making up a bigger proportion of the UK economy than ever before, and that trend is only set to continue. There is a growing need to engage these communities even more closely to ensure their incredibly valuable contribution is properly rewarded in their participation in workplace pension schemes.”
Auto-enrolment, and other solutions
The Pensions Commission, which was relaunched last summer, has been tasked with finding ways to address inequalities in the pension system, such as the gender and race gaps.
However, there are already many ways in which policymakers, employers, and pension providers can help ‘underpensioned’ populations save more.
Many in the industry have been campaigning for the government to remove the lower earnings limit on auto-enrolment, which would mean low earners automatically saving more into their pensions.
The Reward & Employee Benefits Association recently called for employers to consider raising contributions and for these contributions to be retained during maternity and carers’ leave periods. The association also highlighted that parents claiming child benefit also receive National Insurance credits, which count towards the state pension.
Research by the OECD last year found that the gender pay gap was decreasing, partly due to policies requiring pay gaps to be disclosed and addressed. Further progress could be made, the organisation said, by “tackling persistent gender differences in employment, hours worked and wages”.
The direction of travel is the right one, but it is clear that it needs to be faster.
