Why it’s a man’s world for pensions – and how you can help change this

The gender pay gap isn’t a surprise to anyone these days, and government, institutions and businesses are taking steps to address it. But do you know about the gender pension gap?

It’s the difference between the amount women typically have in their pension pot compared to the amount men have. And this leads to a shockingly high gap in pension income, with trade union Prospect putting it at 37.9% 1

Why is this happening?

The reasons for this are many and varied, but as an employer, you will know women are more likely to:

  • take breaks during their career to have children
  • work part-time to accommodate their caring responsibilities
  • work in lower-paid positions
  • hold fewer management roles.

When we looked at 4.5 million of our workplace pension pots 2 and we saw a definite trend of the gender pension gap accelerating with age:

  • 16% for 35 to 39-year-olds
  • 22% for 40 to 44-year-olds
  • 32% for 45 to 49-year-olds
  • 43% for 55 to 59-year olds

This shows a clear line in the sand around the time women are making decisions on career and childcare. With breaks and many returning to the workplace part-time, it can be nigh on impossible for women to catch up.

Lower pay means lower pension contributions

Taking a break from work – whether through maternity leave, taking a sabbatical or being a carer – often means also taking a break from paying into a pension. But stopping pension contributions, even for a while, has an impact on the income employees will have in the future.

When a worker decides to go part-time, they will see a corresponding fall in income, and that has a knock-on effect on pension contributions. For example, a worker reducing their hours by 40% will see a 40% drop in income. But because of rules around pension contributions to some schemes, this can see them fall by around 50%.

Added to that, lower employee contributions also mean lower employer contributions, so it’s a double whammy. Employees choosing to reduce their working hours would need to significantly up their pension contributions to match the shortfall. However, recent events and the increased cost of living, means that it will be a financially challenging year for many, and long-term savings might not feel like a priority.

We see this in our workplace pension data 2 as contributions for men keep increasing up to retirement, while the average contributions of women stall, leading to an increasing pension contribution gap.

  •  13% for 20 to 24-year olds
  • 15% for 30 to 34-year olds
  • 23% for 40 to 44-year olds
  • 35% for 50 to 54-year olds
  • 45% for 60 to 64-year olds

In cash terms a gap in average monthly contributions of £22 per month amongst workers aged 20 to 24 turns into a £276 a month chasm for workers aged 60 to 64.

There may come a time when a workplace pension may be a woman’s main source of income, so it’s important you help them do what they can to keep it on track. Here are some useful tips you can pass on to your employees to make sure they know more about the impact of their decision before they make it.

Six tips for employees considering taking a break

Keep paying into their pension

  • With a pension, even a small regular contribution can make a difference as it aims to build up over time, although this is not guaranteed.
  • For those in long-term relationships, it’s always worth them having a stake in their finances. If divorce becomes a factor, pensions will be part of the assets to be divided up.

Top up their pension if it’s affordable

  • Encourage part-time workers automatically enrolled into a workplace pension to think about increasing their monthly contributions if they can.
  • Similarly, if they are taking a break from work, suggest they think about topping up their pension before they go or when they come back if they can afford it. This will help offset some or all of the payments they’ve missed.

Base decisions on what makes the most sense

  • If you have employees considering reducing their hours to look after children, encourage them to think about whether it makes better long-term financial sense for them or their partner to work part-time, and consider their pension as well as their take home pay.

Mind the gap

  • Direct them to retirementlivingstandards.org.uk  to see how much they might need to plug the gap between a minimum or comfortable level of living in retirement if they take a break.

Check National Insurance contributions

  • Workers need 35 years of contributions or credits to get the full state pension when they retire. While women taking time off to care for a child can get National Insurance credits, this only applies if they claim Child Benefit. Your employees can find out where they stand by checking their National Insurance record at gov.uk/voluntary-national-insurance-contributions. They might have the option of paying in to fill any gaps. It’s not as complicated as it may sound.

Enrol in the workplace pension if working part time

  • If an employee is working part-time and earns less than £10,000, they may not be automatically enrolled back into the workplace pension. But they can opt in, so make sure you let them know this is an option.

Empower your female employees with financial education

Pension contributions are unlikely to be a deciding factor when considering whether to work part-time. What is important is that people understand the long-term impact on their pension before making that decision. This is crucial to good financial planning. People might consider upping their pension contributions, but this would be carefully balanced against disposable income. Another option is that parents may consider sharing the caring responsibilities to help spread the long-term financial impact.

Emma Douglas, Director of Workplace Savings & Retirement

It may be worth them speaking to a financial adviser, who will be able to outline their personal situation. However, as advisers charge for their services, that may be out of reach for your employees.

As an alternative, you could point them towards information on their pension and link them to pension calculators. This will help them understand what a difference reducing or increasing their pension contributions will make to their future income. It will also help them understand the impact of their decisions. However, they also need to bear in mind they may not get back the amount they have put in.

As an employer, you know how important it is to make sure your employees have all the facts they need at hand to make the right decisions for them. And that’s what women working part-time in particular need you to do for them. Because having the right information now could make a big difference in the future.

Explore Business perspectives

Your hub for expert insight and knowledge

Featured articles