The gender pensions gap, which explores the differences in retirement income between men and women, is becoming increasingly difficult for trustees and schemes to ignore.
In 2012, the government introduced auto-enrolment (AE), which made it a legal requirement for employers to enrol their employees into a workplace pension.
It was a revolutionary piece of legislation and a landmark achievement in getting millions of workers to join a workplace pension scheme and to start saving towards their retirement.
However, despite the significant progress made over the course of the decade, research from several industry bodies has indicated there is a significant gap between the retirement income between men and women.
With the gap so substantial, it is essential for schemes and trustees to be aware of this disparity. PP looks at what the implications are and how schemes and trustees can start to close the gap.
Breaking down the gap
The gender pensions gap has been well documented with numerous industry bodies conducting research into the causes.
The 2022 Women in Retirement report published by Scottish Widows illustrates the substantial gap when it comes to retirement planning between men and women.
The report found women of all ages are much more likely to report feeling unprepared in terms of their retirement. Furthermore, they are also more concerned about running out of money in retirement when compared to men. The concerns about lack of money in retirement peaks for women aged between 40 and 49 years old, with 73% citing these concerns compared to 66% of men of the same age.
Source: Scottish Widows
The firm's findings revealed women of all ages are less likely to be saving for retirement than men, with 16% of women in their 40s not putting anything towards their retirement compared to 10% of men. This gap closes as people get older, with both 15% of men and women in their 50s reporting no savings.
Source: Scottish Widows
Source: Scottish Widows
Across every age group, Scottish Widows found that women have significantly less pension wealth than men.
A report by Now Pensions published last year found by the time women reach pension age they would have accrued £136,800 less in retirement income, compared to men. In order to make up this gap, it said women would have to either choose the unlikely options of working from the age of four or keeping working until they are 83.
The report's findings also revealed that, by the time women reach the age of 65, they will have typically saved £136,800 less into their retirement pots than their male counterparts, with women having a pot valued at on average at £69,000, compared to £205,800 for men.
Source: Now Pensions
Furthermore, it said 23% of employed women did not meet the qualifying criteria for AE, compared to just 12% of men - indeed, a further report from Now Pensions on the under-pensioned groups in society found just under two million women earned below the £10,000 AE threshold.
Speaking on a PP webinar last year, Legal & General Investment Management (LGIM) co-head of defined contribution (DC) Stuart Murphy said the gender pensions gap occurs from the "get-go".
"The first myth I'd like to debunk is the gender pensions gap is something that occurs in later life," he said.
"It grows throughout the life of a woman in terms of pension savings, within every age sector, right from the point that a woman and man start contributing to a pension scheme.
"It starts to accelerate from about age 35, which is not unexpected as this coincides with career breaks for women in terms of childcare and maternity breaks, but it never catches up after that point."
LGIM's research also revealed the gender pensions gap is a prominent issue across numerous sectors of the workforce. Of the six sectors with the biggest gender pensions gap, three(healthcare, senior care, and pharmaceuticals) are female dominated.
Research from the Pensions Policy Institute (PPI) found the differences between typical working patterns of men and women could be contributing to the gender pensions gap.
Their research revealed men typically have five working patterns throughout their life, most of which are full time. For women, there are 11 typical working patterns they will experience across their careers, and crucially only 27% of those are full time. Furthermore, it said some 43% women will have a caring break at some point in their careers.
The PPI also conducted research on a number of policy measures which could be deployed by the government to take some steps to reduce the gap. These policy measures were a family carer top-up to a pension, contributions from the first pound, higher contributions and changing tax relief to a flat rate of relief at around 30%.
The research revealed while policies such as contributions from the first pound would impact men as well as women, it would have a greater impact on women's retirement pots over men's due to the fact women are missing out on a more substantial proportion of their income.
However, the key finding from the PPI's research revealed policies specifically targeted at those who are not in paid work (who disproportionately tend to be women), such as a family carer top-up, have an increased likelihood of reducing the gender pensions gap and could make up to half the pension savings missed by a woman.
The broader industry feels a substantial step forward would be the implementation of the 2017 AE review, which set out the recommendations for lowering the threshold for AE from 22 years of age to 18 and for the removal of the lower limit of the qualifying earnings band, enabling contributions to be paid from the first pound of earnings.
Last week, the government said it was backing a private members bill put forward by MP Jonathan Gullis, which looks to grant two extensions to AE - abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18.
Speaking before the government's announcement, Aegon head of pensions Kate Smith said such measures would help lower income workers, who tend to be more disproportionately female, to be able to save for a pension and to get employer contributions from a younger age.
Now Pensions head of campaigns Samantha Gould echoed these views - saying far too many groups were locked out of the AE system and are unable to earn enough to put money aside for later life.
Scottish Widows head of client relationships Alison Nicolson said extending the eligibility criteria to include employees who earn less than £10,000 a year would significantly benefit women who work part-time as they juggle other priorities like childcare.
Nicolson also says the responsibility falls to everyone in the industry to educate their female members on the gender pensions gap.
"Providers, employers, and trustees should ensure women understand the impact on their pensions of the decisions they are making and how they can mitigate that impact."
Gould agrees and says "education is everything" for schemes to communicate to their members about the gap and to mobilise efforts to begin to close the gap.
"The more we can raise awareness of the inequalities that exist and equip people with the resources and signpost where to get help, the more we can chip away at some of these huge savings gap which exist."
Nicolson adds it is important for schemes to impress upon their members the "value" of maintaining contributions wherever possible.
"A pension is a long-term investment, but it requires short-term action and commitment. A comparatively small cut in contributions can result in significant losses upon reaching retirement. Schemes can help women to understand the impact of life's moments on their long-term savings."
As an example, Nicolson explains if a 40-year old single woman was to reduce her contributions by £1,824, this would mean she would be £62,000 worse off by the time she reaches retirement,
Hymans Robertson partner Kathryn Fleming points to the "powerful data" which schemes can access in their efforts to narrow the gap.
"This data can help schemes identify the scale of the problem and the themes of this data can be discussed with sponsors with a view to driving forward change."
With career breaks, including when women take time out of work due to maternity leave, being considerable factors in causing the gap, Smith argues providing women with "awareness" at this time is of critical importance.
"More information should be given to women at the beginning of maternity leave about the impact of taking the time out and what it means for your money and for your pension. It's providing women with awareness so people are armed with those choices and when they are returning to work, they understand the implications as they will need to balance their family needs with career and monetary needs."
Pensions Equality Taskforce
There is scope for the industry to combine their efforts to close the gender pensions gap.
To that end, Legal & General set up a Pensions Equality Taskforce in 2021, to look at inequality and how to tackle it.
Murphy said the taskforce has brought the industry together with a commitment to share data, thoughts and leadership - noting it had already formed a number of workstreams looking at data, policy and education to move the initiative forward.
He said the idea is that when the industry goes to lobby the government for change, it does so "as one".
He said: "The work we're doing is looking at policy changes and product innovations and bringing together data across all the providers, sharing thought leadership and ideas and looking at the education piece around the gender pensions gap.
Murphy adds the taskforce is not a "closed shop" and encourages anybody who has an idea about how to narrow the gap to come forward.
Impact of the cost of living crisis
The work being undertaken by the Pensions Equality Taskforce is undoubtedly a crucial step forward to close the gap - especially at a time when the cost of living crisis is having an effect on many savers' ability to maintain their contributions.
Now Pensions' Gould cautions people against stopping pension contributions at this time - saying doing so would "exacerbate" the gender pensions gap, particularly for those on lower incomes.
She says: "In the current climate, now is not the time to be telling people to put more money into their pensions when they are faced with much shorter-term financial pressures, but it continues to be important to ensure support is available when savers consider their retirement plans."
Nicolson warns with while current economic circumstances is "a cause for concern" for savers managing their finances in the short-term, the industry must focus on the longer-term issue of the gender pensions gap.
"The cost of living crisis is predicted to be a short to medium term issue. The gender pensions gap has the potential to be an even bigger, longer-term issue unless serious steps are taken now."
Murphy cautions while the industry must be "cognizant" of savers being unable to put money aside for their retirement, the industry must be sympathetic in its approach to these savers, particularly for those on lower incomes.
"Our research has pulled out 72% of women say they are less like likely to be able to afford to pay into a pension because of the cost of living crisis. However, that doesn't stop us making it clear to women what the implications of stopped contributions are."
A lasting legacy
While the cost of living crisis may be putting members' in a position to meet their short-terms needs ahead of their pension contributions, the industry remains committed to ensuring this issue is addressed.
Gould says the policy proposals put forward in Now Pensions' report would "get a further three million women and under-pensioned groups" to start saving for their future.
"If these policies were brought in, we could start to make a dent in the ender pensions gap and ensure that everyone reaches retirement age with an adequate level of income."
Fleming notes while efforts to close the gap should not be "put on the back burner", the industry should take note of the length of time it took to implement the AE legislation.
"We should recognise that change can take time to implement and it would not be unreasonable to signpost that change will take place in a year or two to allow the industry to prepare for any additional costs."
Speaking on last year's PP webinar, Pensions Policy Institute deputy director Sarah Luheshi stated even if the industry can "turn the dial" a little bit on the gender pensions gap, it will have an impact for millions of women saving into their retirement.
"The more we can work together to identify and address and potentially lobby and discuss with government, the better placed we will be and the more we can actually help 50% of the population. If we can work to get an agreement on what is the best or most appropriate outcomes and options available, we will be leaving a decent legacy for those who come after us."
Murphy added the challenge of tackling this gap will require the collective efforts of the entire industry, man and woman alike.
"The gender pensions gap is not a woman's issue, it is everybody's issue and the only way we will attack this is for everybody to work together on it. We must never talk about this as a problem for women, it is a problem for everybody in the industry and we need to continue to rise as one to bring some real change."