A Pensions Policy Institute (PPI) study sponsored by Cardano’s sister company NOW: Pensions has revealed that women aged 25 will accumulate a workplace pension that is 20% less than men by the age of 65. If they take a five-year career break, they will accumulate a pension pot which is 33% smaller than male counterparts. 

What we really wanted to understand was: what’s the reason for this gap? Why is it that women have got substantially less savings than men as they approach retirement? Why is it that so many more women than men don’t have any savings as they approach retirement? We wanted to really understand the nature of that gap and where there could be opportunity for policy interventions to narrow it.”

The study produced three main findings. “The biggest one of course is that women have 51% on average of the pension wealth of men in those years when they’re approaching retirement, which is really concerning. The second is that 50% more women than men are heading towards retirement with no pension savings at all. So they’ll be entirely reliant on the state pension or the pension of their partner or husband. That’s a massive issue.

The third point to emerge from the study is that most annuities are actually purchased on a single-life basis by the male partner. As women tend to live longer than their husbands on average, we’re going to see a lot of women in their very old age, who have lost their spouse or partner, and actually have no private support because the annuity stops when their partner dies. So they’ll be entirely reliant on the state pension. Women who may not have been working consistently throughout their working life might not even have the full state pension there to support them. So it could be a really dire situation as they reach older ages and become widows.”

“There are two complicating factors at work here. First, women tend to live longer than men, 3.7 years on average. Second, married women have traditionally tended to be younger than their husbands. Historically speaking, the average gap has been about four or five years, although it is now narrowing a bit among younger generations. So that’s eight or nine years during which, if their husband has purchased a single-life annuity, they’ll not have any private pension provision after his death.”

As far as Samantha is concerned, the most important thing is for women to acknowledge that they will inevitably have gaps in their careers. Given that, biologically, they are the only ones who can have children, they will invariably have to take some time out. “If you know these breaks are coming, it’s a case of understanding that you need to put more into your pension as soon as you start work, and to get into that brilliant habit of matching your employer contributions, up to the very maximum. Just before you go on your maternity leave or you start thinking about having children, throw more money into your pension. Again, once you’re on maternity leave, continue paying into your pension. Your employer will pay up to a point, but obviously your pay reduces to the level of your maternity pay, but it’s important to try to continue to max out. Obviously, that’s difficult, because you have nappies and bottles and other things that you’re going to want to spend money on. It’s all about acknowledging that you are going to have a gap. If you want to have children, you’re not going to be at work. Whereas men have a 40, 50-year working pattern with no breaks. Women don’t have that. So women need to prepare for those gaps by putting more money in before, and then again when they go back to work.”

I’m adamant that women need to be told about it.
Knowledge is power.

Samantha Gould

Amazing opportunity

Interestingly, the Covid-19 pandemic has presented an amazing opportunity for employees to demonstrate that they can work from home. “In terms of productivity, the past six months have proved that businesses can cope with people working from home. I’d like to see less emphasis on things like presenteeism, where you have to be seen to be working to be assumed you’re working. Again, if you are able to, when you do return, work on a full-time basis rather than reduce your hours and reduce your pay, as this could stop you from reaching your £10,000 threshold for automatic enrolment. If you can continue working full-time hours, but flexibly from home, you’re going to be maxing your contributions.”

How else can the situation be improved? “One of the big conclusions of the Gender Pensions Gap report,” explains Lauren, “was that a family carer top-up could make up half of the pension savings that are missed by women taking time out of work to care for a child or an elderly family member.” The family carer top-up is worth £833 per annum and would go into a pot of money, which would then form part of a person’s pension savings, making up for missed contributions. Although it has been calculated that it would cost the Treasury £1.6 billion, Lauren believes it would be a big step in the right direction.

Auto-enrolment for all?

Under the UK’s system of automatic enrolment, every employer must offer their employees a pension. Breaks are not included, so those earning less than £10,000 a year are not part of the system. Lauren is proposing to open up the system, so that for the first pound people earn, they would start paying into their occupational pension. “Also including earnings if you have multiple jobs. Because there are a lot more working mothers who do multiple part-time jobs. If you combine all of those earnings, they earn well over £10,000 pounds, but they earn less than £10,000 in each individual job, which means they’re not enrolled by anyone. In other words, if the £10,000 threshold were to be removed, that would bring another three million women into workplace pensions. Of these, 300,000 are single mothers.”

We can’t afford the luxury of having a lot of well-trained people who are sitting at home just because of solvable tax inefficiencies.

Lauren Wilkinson

Cost of childcare

Childcare is another contributor. The average cost of a nursery is now higher than the average mortgage in the UK. Samantha explains: “A lot of the reason that mums don’t go back to work – and I was one of those – is because you can’t afford the childcare. Your salary from a part-time job doesn’t actually pay for the childcare. So it makes more sense to stay at home. One in five grandparents in the UK are providing free childcare for their grandchildren. That equates to a saving of about £22.5 billion.”

With the population both shrinking and aging, anything society could do to make childcare easier is really important. “We can’t afford the luxury of having a lot of well-trained people who are sitting at home just because of solvable tax inefficiencies.”

Lauren: “Another thing we found in the study was that, in nearly three quarters of divorces, pension assets are not considered at all. So you could have a woman who’s taken a lot of time out of her career to raise the children. She’s perhaps not got the pay rises that she would have done if she’d been working consistently and she might have even opted out of her pension because she’s relying on the fact that her husband will have a good pension. Then they get divorced and the pension entitlement doesn’t get split. So she ends up with nothing, even though she’s made all those sacrifices on that basis.”

Making noise for change

Both Lauren and Samantha are confident that the forces of change are on the move. “When we launched our report in July 2019, we presented it to a room full of industry people: all our competitors were there, together with the pensions regulator, PPI, members of parliament, and people from the Government Equalities Office,” Samantha recounts. “Essentially, we wanted to get everybody within the pensions industry together. And since that first launch date, we’ve had an immense amount of support from organisations across the UK. Pension providers, financial services companies, research charities and even our competitors are all shouting about the same topic.”