Gender gaps in pension incomes could persist for decades

That’s according to the IFS

Gender differences in pension incomes could persist for decades to come, according to a report.

Gaps are driven by differences in labour market patterns, which particularly open up after people have children, the Institute for Fiscal Studies (IFS) said.

Men and women reaching the state pension age now have similar state pension incomes, according to researchers.

But inequalities remain when it comes to private pension wealth, even for the youngest generations of working age. This implies that there will be persistent gender differences in average private pension incomes for decades to come, the IFS said.

The research, funded by the Nuffield Foundation as part of a series of reports on pension saving over the life cycle, was launched to coincide with International Women’s Day on March 8.

Two years before the arrival of a first child, prospective fathers and mothers make, on average, fairly similar contributions to their pension, the IFS said.

But six years after the birth of the first child, average contributions made by fathers are more than twice the average contributions made by mothers.

Much of this gap is driven by differences in employment rates, hours worked and hourly wages that open up at this point, the IFS added.

Among private sector employees, the gap between men’s and women’s pension participation is driven by the fact that a higher share of women earn less than £10,000 per year and so do not have to be automatically enrolled into workplace pension saving by their employer, it said.

Laurence O’Brien, research economist at the IFS and an author of the report, said: “Reforms have led to the gap between men’s and women’s state pension incomes shrinking to almost nothing for the recently retired.

“But gaps in private pension income remain. A lower amount is put into women’s pensions each month than men’s, on average, driven almost entirely by differences in employment rates, hours worked and hourly wages.

“These differences have narrowed over time, which will eventually reduce the gender gap in pension incomes.

“However, labour market gaps are still prevalent even among the youngest generations, and they open up especially after having children.

“As these generations will not retire for many decades, we can expect a gender gap in pension incomes to remain for a long time yet. Policymakers concerned with this gap should see it as part and parcel of labour market issues, as opposed to a completely distinct issue with private pensions themselves.”

Alex Beer, welfare programme head at the Nuffield Foundation, said: “The UK pensions system relies heavily on private pension saving for providing living standards in retirement.

“This means that differences in labour market participation and earnings that lead to large and persistent inequalities in labour market outcomes between men and women, subsequently show up in the gender gap in pension incomes.

“Addressing the gender pensions gap therefore requires a multifaceted approach, with policies to tackle gender inequalities in the labour market at its core.”

Researchers used several data sources for the report, including figures from the Office for National Statistics (ONS), the Department for Work and Pensions (DWP) and other research papers.

Last week, the Government said it backed proposals which could lower the age at which people are automatically placed in a workplace pension from 22, where it sits currently.

Conservative MP Jonathan Gullis’s Private Members’ Bill, backed by the Government, could pave the way for the age for being automatically enrolled to be reduced to 18.

Phil Brown, director of policy for People’s Partnership, provider of the People’s Pension, said: “Much more needs to be done to enable mothers to return to the workplace or increase their hours if they want to.”

According to workplace pension data from Aviva, which analysed a sample of just over five million workplace pension plans, women aged 60 to 65 years old have pension pots which are on average just over half (57%) the size of men’s pots at the same age.

There is also a 21% gap between women’s and men’s pension contributions, when looking at 35 to 39-year-old pension savers, Aviva said.

A DWP spokesperson said: “Automatic enrolment has transformed pension saving and boosted the number of women saving for retirement, with participation rates catching up with those of men.

“In 2021, 87% of eligible women working in the private sector were participating in a workplace pension, up from 40% in 2012.

“We recently confirmed support for proposals to expand automatic enrolment even further, enabling millions to save more and to start saving earlier. These changes will particularly benefit groups – including women, young people and lower earners – who have historically found it harder to save for retirement.”

Published: 08/03/2023 by Radio NewsHub