Charting a path to pension parity

In the growing debate on the gender pay gap, another controversial issue has emerged: the gender gap in pensions.

The gap is wide: Fidelity International estimates that the average UK pension pot for working men aged 55 or over is £114,000, compared with £66,800 for women in the same group.

The lower average pension amount for women can be explained both by the gender pay gap and by the fact that more women leave full-time employment during their working life than men to act as primary caregivers for children and other family members.

In the UK, this can also affect the size of women’s state pension by reducing the number of years they can make National Insurance contributions. Although workers with gaps in their contributions can make up years to address those shortfalls, Many do not realize this or cannot afford it..

Women also live, on average, longer than men, meaning their fixed pensions are likely to have to cover a longer retirement.

Qualifying for workplace pension schemes can also be an issue for women, as they are more likely to have reduced hours or work part-time than men.

In the UK, pension provider Now Pensions estimates that 3 million women do not meet the minimum earnings threshold of £10,000 a year for automatic enrolment in an employer pension.

OECD data shows that average aggregate pension payments for women are 24% lower than those for men.

At the lowest income threshold of £120 a week, women are eligible to opt in and the employer must contribute in the same way as someone who was automatically enrolled. However, Claire Trott, divisional director of retirement and integrated planning at St James’s Place, says: “This may not be obvious to someone on a lower salary. Also, joining a scheme and paying contributions is a very different scenario to full auto-enrolment, where the only problematic factor is opting out of the scheme.”

Emma Douglas, head of wealth policy at UK insurance and pensions group Aviva, agrees. She says automatic enrolment thresholds could be “exacerbating this problem” and urges the government to improve the mechanisms.

This gender gap in pensions is not a problem unique to the UK. OECD data shows that across 34 member countries, average aggregate pension payments for women are 24% lower than for men. This puts a higher proportion of women at risk of falling into poverty in old age than men – 16.6%, compared with 11.1%. The World Economic Forum’s 2021 paper came to similar conclusions: How to solve the gender gap in pensions.

Even in cases where women save, the OECD… Joining forces for gender equality A report highlights gender gaps in asset-backed pension systems. On average, women aged 65 and over receive 26% less income from asset-backed pension systems than men. In Japan, the gap is as high as 47%; in Estonia, it is 3%.

In many of these countries, the reasons for gaps in private pension provision are the same as in the UK: lower participation of women in asset-backed schemes, shorter careers and lower average earnings.

But there are behavioural differences too. Research by UK pension provider Aviva shows that 37 per cent of women in the country do not invest outside of any workplace pension fund, compared with 24 per cent of men. A study this year for Fidelity covering investors in six markets in the Asia-Pacific region found that women were generally concerned about having less discretionary money to invest and had a lower appetite for risk.

Other factors exacerbate these problems. The design of pension systems is not always gender-neutral: the OECD has found that in some countries, such as Bangladesh or Singapore, systems remain biased in favour of men, meaning there will always be a pension gap as long as social norms are maintained.

Furthermore, reliance on state services in countries such as Malta and Vietnam has led to a lack of individual pension services. However, as one Vietnam-based consultant says, demographic shifts towards older populations and the inability of governments to continue to shore up state services have highlighted the need for personal services.

Some countries are beginning to address gender disparity in pension funding by tackling some of its causes.

Sophia Singleton, partner at XPS Pensions, explains how Australian workplace plans should ensure they hold more assets in equities if the fund value is below certain thresholds, to give smaller pensions a better chance of growing.

Jackie Boylan, head of investor services at Fidelity International, also highlights Hong Kong’s mandatory provident fund system, which provides additional contribution support to lower-paid workers, and Japan’s new NISA scheme, which aims to encourage people to invest through tax breaks.

But individuals can take control. Rowan Harding, a financial planner at Path Financial, a UK investment advisory firm, says women often put off financial planning until later in life, making it “harder to catch up.” That’s why it’s crucial to start earlier.

Women should also review their state pension entitlements and, where possible, make up for any missing years. Regardless of state incentives or workplace provisions, Boylan stresses: “It is never too late or too early to make significant changes.”