The Gender Pension Gap in the UK – Full Report & Recommendations
Recommendations to Overcome the Pensions Gap & Introduction to our Research
On behalf of the Fintuity Team, it is a great pleasure to be able to present this report as well as some practical recommendations to overcome the growing pensions gap that has been highlighted by our analysts,
Over the course of a number of months, our independent research has identified some serious gaps between UK pension incomes for men and women and we have outlined our findings and research in the report below.
In response to the increasing media, industry and consumer interest raised as a result of our research, I thought it would be useful to outline some helpful tips, before we present the findings, about how you and your family can take steps to improve your retirement income.
Pensions are an incredible lifeline for us as we move from employment to retirement. We are living longer than before and women are more than likely to outlive men, so our years spent in retirement may be almost as long as our years spent working.
I think of pensions as a ‘pay it forward’ approach to looking after yourself, just like the kind customer who leaves money in the coffee shop for someone else’s benefit.
Paying yourself in the future is a way of being kind to yourself in the years when you feel you should be relaxing and enjoying yourself after the hard grind is over; enabling your retirement lifestyle while you kick back and enjoy watching your grandchildren play.
You really couldn’t give yourself a better gift.
Although this article is written from research about women, traditional gender roles in the home are changing rapidly. I have applied traditional gender names in the following information, but whichever gender you are, if you are the lower earner, main houseperson or carer, then many of these top tips apply to you too.
- Issues faced by women
- Up to 26% less pension income than men in some years
- Many low earners have no pension at all
- Many have very low state pensions
- Reasons why
- ‘Caring role’ – looking after dependent children and adults
- Children
- Maternity leave affects pension contributions made through salary
- High childcare costs mean many choose to work part time if / when they do go back to work
- This impacts also the type of work done; many choose lower paid, local jobs which fit around nursery and school hours
- Auto-enrollment rules in the workplace do not favour low earners or those who work 2 jobs to make ends meet
- You must be 22 and earning at least £10,000 a year from one employer (there is some flexibility here but this is the basic rule)
- If you are not eligible for auto enrolment you may opt to pay into the scheme but your employer doesn’t have to pay in on your behalf – missing out on contributions from the employer
- Fixing it
- Start paying into a pension as early as you are able, even if it’s only £20 a month. Something is better than nothing. As a rough guide, to keep up with the men, if you start your pension at age 20 you’ll need to pay in an extra £1300 a year more than your workplace pension, for the rest of your working life. From age 30 it’s £2000 a year, age 40 it’s £2900, and age 50 it’s £5300 a year. You can see from these figures that the earlier you start, the less it costs you each year. Teach this to your children.
- Choose autoenrollment, where 8% of your salary will be paid into a pension each year. Talk to your HR department about maximising the money your employer will pay in based on your level of contribution; you will be surprised at how much some employers will offer. If you want to save more than this, have a conversation with a financial adviser who can show you the best way of doing so.
- Pay national insurance for a minimum of 10 years up to 35 or more years
- Earn over £183 a week
- Pay self employed class 2 and 4
- Look at your national insurance contributions online, and consider a top up if you’re able. Do check this with the Department of Work and Pensions as for some people, extra payments may make no difference at all.
- Other things that you can do:
- Talk to your significant other. Might they be willing to help out with extra contributions for you? Tax uplifts on personal pension contributions are very worthwhile having; you get an extra 25% of your contribution added by the Government. Do take financial advice though; nobody wants an unexpected tax bill for paying too much in!
- Consider giving your children a helping hand by paying up to £3600 a year into a personal pension in their name.
- Make sure your significant other has filled out an expression of wish form in your favour from their own pension scheme. This means that you will be entitles so some or all of their pension if they pass away before you. This is especially important if you are not married, or if your partner has been married to someone else before you. You can inherit a pension, and you can pass one down to your children.
I hope some of this has been useful to you. If you would like to know more you can find me at Fintuity.com, where you’re only a few clicks away from qualified, helpful and personalised advice.
Elizabeth Scott – Fintuity
The Gender Pension Gap in the UK
Executive summary: an overview of the gender pension gap in the UK and main findings of the research
Nowadays the gender pension gap is the utmost important problem that policymakers try to solve. Pensions have many components that lead to a lower amount among women. Income affects pensions significantly, the current gender pay gap issue affects the difference in income levels of male and female pensioners.
According to the Prospect’s analysis of the gender pension gap, the estimate fell by roughly 1.7% from 2014/15 to 2018/19, so the government programs appear not to have a significant impact in the contribution to the women’s pension growth. The structure of the gender income gap among pensioners changed: occupation pension income decreased while earning income as well as investment income have risen.
The analysis showed that the average weekly income of male pensioners for the period from 2013 to 2018 experienced growth, while for females this figure was falling. In addition, aging female pensioners face greater inequality. Besides, females from households that are at the bottom 40% by household income are estimated to have zero pension wealth. This makes female pensioners less financially secure and more dependent on other family members.
Noteworthy, women suffer from lower State Pension what combined with a number of other factors divest them of an opportunity to reach men’s pension level. 10% of women take care of an adult and a dependent child, which negatively affects female pension income: most women look after their children and elderly relatives by providing unpaid care and sacrificing their careers.
Current study also conducted the cross-regional analysis and looked at the levels of earnings in all 12 regions in the United Kingdom. The earnings of individuals define their pension income. However, unlike the growth in the gender pension gap over the past several years, the gender pay gap was stable and even decreased for the majority of the UK regions. The results of the study showed the lowest gender pay gap in Northern Ireland and highest in London, East, and South East. The difference was mainly driven by the amount of public sector jobs relative to the private sector as well as the childcare costs in the region.
The estimated gender pension gap helps to understand what additional savings need to be undertaken annually to achieve the same level of income for men and women in retirement. This research suggests that, for instance, the average 30-year-old woman needs to save an additional £2,000 a year to achieve a male’s pension income levels.
Evolution of the problem of the gender pension gap across time
Differences in salaries and pensions are observed between men and women across many years. The government constantly tries to reduce gender inequality by implementing different programs. Despite many attempts to decrease the gender pension gap, it remains almost unchanged over the years. Hence, such a tendency must be a signal for actions for policymakers.
The Prospect’s report gives an estimate of the gender pension gap in the UK for 4 years. It can be seen that beginning from 2014 the estimates were steadily falling, revealing the positive impact of the social policy reforms targeting the gender pension gap issue. However, in 2017/18 there was a trend reversal.
| 2014/15 | 2015/16 | 2016/17 | 2017/18 | |
| Gender pension gap | 41.6% | 40.7% | 39.5% | 39.9% |
On a graph below dynamics of the gender pension gap for single pensioners that are over State Pension Age in the UK are presented. It is different from the overall estimate of the gender pension gap, as it excludes figures evaluating the difference in pension income levels among couples. Overall, there is a significant difference in pensions of men and women over the last 5 years, this gap is higher than 20% within the last 3 years and it has a tendency of subsequent growth.
In 2014/15 gender pension gap was the smallest and equal to 8%, but throughout the years it rose up to 26% by 2018/19 year. The highest jump occurred in 2015/16 when the gender gap boosted by 9%. Thus, the gender gap had a growing tendency.
Gross income of single pensioners consists of different sources among which are benefit income, occupational pension income, personal pension income, investment income and earning income. The benefit income of men, as well as women, is the main source of income. An occupational pension scheme is an arrangement between employees and an employer of a pension after retirement. A personal pension scheme is a pension that is provided to employees from a pension provider.
The major gap is in personal pension income which reached its peak in 2017/18 when it was 74%. Then there is a slight decrease in 2018/19 when it attains 63%. Throughout the 2014/15 – 2017/18 gap in personal pension increased significantly while in occupational pension income gap was exposed by gradually changes. In 2015/16 compared with 2014/15 a large jump was simultaneously among two sources of income: investment and earnings, the gap rose approximately by 40%. While the earnings income gap rose from 8% to 74%, investment income boosted from 5% to 61% within these 5 years. It corroborates that women are not capable to make savings and investments due to low income which results in a low level of pensions. Hence, they do not maintain the same level of standards of living after retirement. Although benefit income is the most part of pension it is approximately the same between women and men, there is no significant discrimination in this source of income.
The structure of the gross income gap among single pensioners has changed over time, let us look at it precisely within the last three years. It is calculated as the share of the difference in the income components between men and women in the gross income. Negative values for the benefit income estimates reveal that women had higher values than men. In 2016/17 occupational pension was the source of the major gender gap between women and men, men had a higher occupational pension and its share in gross income was 52%. Over the years it decreased and reached 39%.
The fraction of personal pension in gross income also shrank by 16% from 2016/17 to 9% in 2018/19. The reverse tendency is observed in earnings income which share rose by 9% within years. It attained 30% in 2018/19 year compared with 21% in 2016/17.
Investment income was also exposed to significant changes: an increase from 11% to 22% throughout the last three years of observations. Benefit income is either the same between women and men or women prevails over this component that happened in 2017/18. We can observe structural changes which mean that earnings income is gradually becoming the second major source of pension after occupational pension income. Noteworthy, the investment income component also increases from 11% in 2016/17 to 22% in 2018/19. These changes in the structure must be taken into account when attempts of reducing gender pension gap are realized.
Analysis by age and marital status of women
Consideration of the evolution of the gender pension gap allowed to determine trends that data has throughout these years. To understand observed changes more thoroughly, the analysis needs to be done by age and marital status of women in the UK; in addition, pension scheme participation rates are discussed.
In 2018/19 single male pensioners’ average weekly income was higher than females. On average, older male and female single pensioners had lower pension incomes. The average incomes for males, who were under 75 and 75 or over, were £441 and £429 per week, respectively during this period. At the same time, these figures were significantly lower for the same age groups of women: their average income per week reached £333 for those under 75, and £315 for 75 or over.
Overall, it can be seen that historically the difference between average weekly incomes of single pensioners was significant. Noteworthy, from 2013 to 2018 average weekly income of single male pensioners increased by 8.8% and 12% for age groups of those under and 75 or above respectively, while for female pensioners under 75 this figure fell by 4%, and fluctuated approximately at the same level for female pensioners, who were 75 or over.
As for the different sources of income for single pensioners in the UK, the main was benefit income, which incorporates State Pension, for both men and women. In 2018/19 its fraction in total gross income was 16.7% higher for single female pensioners than for single male pensioners. However, shares of occupational pension income, personal pension income, investment income and earnings income were comparatively lower for single female pensioners. The fraction of investment income in the total gross income of the latter accounted for approximately half of estimates for male pensioners; in addition, earnings income share was approximately three times lower in 2018/19, which is due to the fact that on average female pensioners being older have less opportunity to work.
Share of benefit income in the total gross income decreased in 2018/19 compared with 2017/18 for both single male and female pensioners. The occupational pension component took a larger fraction in female incomes and reached 24.8% in the 2018/19 period, while remaining approximately the same for single male pensioners. In addition, the investment income component increased by approximately 2.2% and 1.2% for male and female pensioners respectively from 2017/18 period. The fraction of earnings income in the total gross income of single female pensioners fell by 1%.
The problem with inequality in pensions is also reflected in figures of private pension wealth of individuals in the UK. Based on the latest period estimates for the period 2014-2018 the gender pension gap issue remains persistent for all presented below age groups except for the group of individuals 65 or over. Overall, it can be seen that female pensioners getting older face greater inequality. Besides, females in households that are at the bottom 40% by household income are estimated to have zero pension wealth, what makes female pensioners less financially secure and more dependent on other family members.
More than half of working-age male and female adults are involved in the pension scheme. After the introduction of automatic enrollment in 2012, the participation increased significantly up to approximately 71% for all employees. It was completed in 2018 and resulted in over half of all working-age adults involved in pension schemes given that their income was above a determined threshold and they were aged 22.
The overall pension scheme participation estimates were lower for women than for men. For the period from 2016/17-2018/19 participation rates increased by 6% for men compared to 5% for women reaching 53% and 49% among all working-age adults respectively. Employer-sponsored pension schemes participation rates were slightly lower for both men and women rising to 49% and 47% by the end of 2018/19 accordingly, and reflected the same trend for the considered period. Share of participants in the individual pension scheme, which includes personal pensions, fluctuated at the level of 7% for working-age men and approximately 3% for working-age women.
Despite the steady trend towards an increase in the percentage of women participating in pension schemes, the gender pension gap issue remains one of the utmost importance given current economic circumstances. Regional specifics of the issue are considered in the next section.
Regional features of the gender gap in the UK
Similarly to the cross-country dynamics, the gender pension gap surely varies across the regions. For example, the most recent PwC’s annual Women in Work Index of 2018 gave the lowest gender gap score to London and West Midlands. While the highest score was earned by South West.
Because the pension income that a person can count on during the retirement age is directly related to his or her earnings, it is important to analyze the cross-regional gender pay gap in the UK. Current research studied the data that was provided by the Office of National Statistics and investigated the cross-regional differences in salaries. This analysis is critical for understanding the region-specific difficulties the UK is facing.
The gender pay gap for all types of jobs was positive in all 12 regions of the UK in 2019, with lowest in Northern Ireland (8.4%) and highest in London (17.1%), East (18.8%) and South East (21.8%). The low gender gap in Northern Ireland can be explained by the relatively high proportion of public sector jobs compared to other regions. Women involved in the public sector in the UK get on average higher salaries then those involved in the private sector. Moreover, the most frequent employment sector for women in the United Kingdom is heath and social work. Whereas the high gender gaps in London, East and South East are partially due to the very high costs of the childcare. According to the national survey published by the gov.uk these three regions have the highest cost of childcare reaching the maximum mean hourly fee of £6.32 in London in 2018.
OECD studies showed that high childcare cost causes some mothers to look after children all the time. These women have to give up their full-time employment and sometimes the entire careers. Most of the time they prefer working part-time or not working at all while looking after kids. This choice makes them lose qualification and have difficulty finding a proper job later in their lives. Furthermore, without having access to an affordable childcare, women prefer to look for a job that is close to home. This significantly reduces the opportunities of women at a labor market. Therefore, the high childcare costs significantly affect female pensions at the retirement age, as women’s salaries are relatively lower during their entire lives after giving birth compared to men of similar abilities.
Almost 42% of women in the UK is involved in the part-time employment whereas for men this share is only 13%. The data for the part-time employees supports this as the gender pay gap for all of the regions is smaller. There is even no gender gap for the part-timers in Scotland and London has the second smallest gender gap (1.5%). South West and West Midlands have the highest part-time employee gender gaps.
Previous studies revealed the general tendency of the gender gap to decrease over the years in the United Kingdom. This tendency is mainly due to the effective policy of the UK government aimed at closing the gender gap as well as the change in the social norms over time. Current research looked into the cross-regional dynamics of gender pay gap in the UK over the period of 5 years. The results indicate that in the majority of the regions in the UK the gender gap became smaller. However, in some of the regions, like North West, West Midlands, London, Wales and Northern Ireland the gap is stable meaning that the UK policy should be revised for these regions.
Drivers of the gender pension gap: childcare and pay gap
Over years employers, as well as the government, treat women differently compared with men. Unfortunately, this tendency remains. There is a great difference between women and men not only in pensions but also in income, care costs. The reasons for such a gap are due to many factors which include low income, discrimination, motherhood and others that we aim to address further.
Women are exposed to higher risks, they face them everywhere, however, they are less prepared due to low financial resources. It is well-known that women have a lower income, hence, the income gap exists. Women face poverty more often, their pay is much lower. Besides, their career is always interrupted due to a child’s birth. Women are not provided with salary-related benefits as their salary is low. Thus, they do not even have an opportunity to prepare for “rainy days”. Let us recall children’s costs on different items that are quite expensive in the UK, and women have to pay for them, which leads to much lower disposable income. Consequently, they are so vulnerable, especially, to poverty and are financially insecure. During pregnancy, before maternity leave, they feel diverse in relation to them which may cause health, phycological problems because discrimination always induces such issues, especially when women are in difficult times.
What is more, even pensions between men and women are diverse as the latter group receives lower state pensions that are not enough for maintaining lives at a reasonable level. State pension age was equalized in 2018 but the government does not make the number of pensions the same. Women are not protected by the government. Consequently, they need higher private pensions that are connected to savings, which, certainly, are low due to low income. Women should be members of occupational pension schemes to receive higher pensions but most of their time they care about children that is why the majority of women work part-time or even do not work at all. Hence, this part of pension (occupation pension) that associates with their low labor activity, cannot compensate for the discrimination of state pensions provided by the government. All in all, it is a so-called vicious cycle, they do not know how to go out because the surrounding environment does not give an opportunity to break it.
According to the ‘Women’s Risks in Life’ report, 42% of women work part-time vs 13% of men, 1/3 of women in 50s care for an adult, more than 1/10 of women have depression after giving birth. All these problems disturb their career, distract from their career goals.
Gaps between women and men result in discrimination – different salaries even on the same job, absolutely unequal caring responsibilities – women’s care of relatives and children, which denies them a chance to take the top position in the company due to many households’ issues. What is more, hours worked are also unequal. Women often are invited to jobs with so-called zero-hours contracts, which does not guarantee a minimum number of hours worked and provides them only with unpredictable income.
Caring responsibilities face significant rise as the government spending has decreased, women must spend most of their income on children and elderly people’s care. They need to find a balance between work and home activities. If care costs reduced, more women would be likely to return to work after children birth. However, some women want to stay at home to care for their family members, to educate their children and develop their skills, while others – a small group of women – will proceed to work after having a child in order to ensure themselves the appropriate standard of living in retirement.
The pension gap rises due to many problems, which women face during their lives. As we explained above, they are low income, discrimination, government paychecks, motherhood, cost care, their attitude to work after a child’s birth. For this gap to be closed, most of these components must be changed for women.
One way to solve the problem for women is to become aware of it as early as possible and given the available opportunities make additional savings to ensure the same level of living in retirement as men.
Additional annual savings needed to close the gender pension gap
Based on the analysis above, a reasonable question arises: how much more working-age women need to save each year to fill the gender pension gap between the pension they can currently expect to receive and the amount men are likely to receive during their retirement?
In order to evaluate additional necessary investment, we need to reveal the age group of women, from which the gender pension gap appears to become significant. The estimate of the gender pension gap by age groups in absolute values is presented in the table below: an issue of inequality opens up when individuals reach 35, when men become much more likely to save for their retirement. This is the exact age, when most of women tend to leave their current work to take care of their children, what results in lower income, from which they can save.
Consequently, women are not saving enough for their retirement. In addition, as they get older the gender pension gap expands reaching almost £100,000 at the age of retirement. At the same time, men accumulate around £235,000 wealth by the age they retire, which is 1.7 times higher than for women.
For the further analysis we used summary statistics that included three categories of private pension wealth: active, preserved or in payment for the latest period available (April 2016-March 2018). The difference between the private pension wealth of men and women (for those with private pension wealth) in absolute value in current prices at the beginning of the retirement period was taken as an estimate of the additional total amount that women need to put into their pensions to reach the same levels of pension wealth as men.
Based on the methodology applied in the Aviva report on pension gap in Europe, we assumed a 5% return on savings for pension, which is applicable given the fact that pension contributions are invested in a wide range of financial assets, including equities and bonds. The proposed rate was set as annuity rate, which was used for further calculations. In addition, expected changes in retirement age were taken into consideration: both men and women from 2028 retire at 67 and 68 from 2046. Also, in calculations the expected inflation rate at 2% is assumed.
The table below explores approximate estimates of additional amount women need to save every year to accumulate similar levels of private pension wealth as men, when they reach retirement age.
Presented figures are estimates of an issue of gender pension gap in the UK, which helps to reveal certain trends. The youngest women have the greatest opportunity to deal with the gender pension gap issue. For instance, a 20-year-old woman needs to contribute an additional £1,300 every year to close the gap, whereas, for a 40-year-old woman this estimate is 2.2 times higher. Every year, the amount of additional savings increases approaching the retirement period.
Conclusion
This report is devoted to the analysis of gender pension discrimination which is observed in the UK throughout many years. This problem is one of the most important for policymakers what makes them come up with different options that should help to close the gender gap. Despite their struggling, this difference in pensions retains and, what is more, last reports show it has a tendency of subsequent growth. Many reasons for discrimination were revealed in this report: difference in State Pensions, salaries, care responsibilities, time devoting to work. All of them contribute to lower women pensions as they are components of their social payments.
Female’s salaries reduce within years as the components of their gross income tend to diminish. Due to their household activities, their participation in pension schemes is lower than men’s. Consequently, they cannot ensure a reasonable level of occupational pension. Automatic enrollment that was introduced by the government in 2012 encourages more women to take part in pension schemes that boost their future pensions.
The main question of the report is how much females need to save additionally to provide themselves with pensions equal to males. The research determines this amount of contribution. Thus, we estimated the amount which will equalize men and women after their retirement, hence, both of them will proceed to maintain a reasonable life level.
References
- The Chartered Insurance Institute (CII). Risk, exposure and resilience to risk in Britain today. Women’s Risks in Life
- Prospect, 2019. Tackling the gender pension gap, https://prospect.org.uk/article/what-is-the-gender-pension-gap/
- B&CE Financial Services Limited. The Gender Pensions Gap. Tackling the motherhood penalty.
- Aviva, 2016. Mind The Gap. Quantifying the pension savings gap in Europe, https://www.aviva.com/social-purpose/thought-leadership/europe-pensions-gap/
- ONS, Pension wealth in Great Britain: April 2016 to March 2018, https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/pensionwealthingreatbritain/april2016tomarch2018
- ONS, Family Resources Survey: financial year 2018/19, https://www.gov.uk/government/statistics/family-resources-survey-financial-year-201819
- ONS, Family Resources Survey: financial year 2018/19, Pension Scheme Participation, https://www.gov.uk/government/statistics/family-resources-survey-financial-year-201819
- ONS, Pensioners’ Incomes Series statistics, https://www.gov.uk/government/collections/pensioners-incomes-series-statistics–3
- GOV.UK, Proposed new timetable for State Pension age increases, https://www.gov.uk/government/news/proposed-new-timetable-for-state-pension-age-increases
- ONS, Gender pay gap https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/annualsurveyofhoursandearningsashegenderpaygaptables
- PWC, Women in Work Index 2020, https://www.pwc.co.uk/economic-services/WIWI/women-in-work-2020-full.pdf
- GOV.UK, Survey of Childcare and Early Years Providers: LA Fees Experimental Statistics, England, 2018, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752610/Survey_of_Childcare_and_Early_Years_Providers_2018_LA_Fees_Summary.pdf
- OECD 2011, http://www.oecd.org/social/soc/doingbetterforfamilies.htm
