The gender pension gap and how to solve it

“Choose to challenge” is the theme of International Women’s Day 2021 - and I choose to challenge the gender pension gap.

We have all heard of the gender pay gap and the initiatives that are underway throughout the UK to address that. Less is spoken of the gender pension gap: the difference in the retirement income of men and women.

The gender pension gap is close to home for me as my mum has fallen victim to it. My dad was the main earner in the house and frequently worked overseas (often with only hours’ notice). As we lived away from family who could be relied on for childcare at short notice, my mum stopped working as a nurse to raise me and my brother.

Although she received a national insurance credit for the state pension during these years, she missed out on a workplace pension. When she returned to work, it was on a part-time basis and a lower salary than she could have received had she not taken a career gap. These factors combined have resulted in a stark difference between my mum and dad’s pensions.

Some may assume the gender pension gap is a problem of the past, and the work on the gender pay gap and equalising the rights of women in the workplace more generally has addressed this problem for the future. Worryingly, they would be wrong.

Scottish Widows announced that women currently in their 20s will retire with a pension worth, on average, approximately £100,000 less than that of a man of the same age. As a 26 year old woman at the start of my career, it is shocking to me that I might retire with a pension pot which is so much smaller than that of my male peers.

The explanation for such a gap is sadly all too familiar to me – taking a career break to care for children, caring for family members (both young and old), working in low paid roles or working part-time. Covid will inevitably also have an impact.

The retail sector has been shattered by the pandemic and it is widely accepted that women, who make up the majority of workers in the retail sector, will be impacted most. More time spent not working means fewer contributions into a pension pot.

All is not lost, and more can be done to close the gap. Auto-enrolment has meant  more people than ever before are enrolled in a pension scheme, but many are still missing out.

If the threshold for auto-enrolment (currently £10,000) was removed, and the minimum age lowered from 22 to 18, more part-time workers (often women) would benefit from auto-enrolment, and everyone would benefit from four more years of pension contributions.

Employers can of course choose to do this on their own – they don’t have to wait for the government to change the law.

Increasing the default contribution rate from 8% would likely have the greatest impact – it is generally accepted that saving only the minimum of 8% of salary will not be enough to live comfortably in retirement.

Another option, mentioned in the Scottish Widows report, would be to introduce enhanced maternity pension contributions – i.e. maintain pension contributions on the basis of pre-maternity pay. This would start to address the gap in their career history that many women face when taking time to raise a family.

The easiest step, and one which can be taken now, is to raise awareness. If women are aware of the gender pension gap as soon as they start working, they can take steps to mitigate it.

But men should also be aware, and help with this challenge: if it is accepted that a more equal world is a better one – why should that stop at retirement?