International Women’s Day asks us to imagine a world free of bias and look towards a more equitable future. Equal pay and financial prospects are integral to this but remain an area where women continue to struggle as they remain significantly lower paid than men.
This issue affects women throughout their working lives and leaves them retiring with a total pension income that is on average a whopping 37.9 per cent less than men. This is more than double the gender pay gap, which currently stands at around 15.5 per cent.
There are many reasons for this, and they run deep. Even the state pension, which forms the very backbone of people’s retirement, is not immune. Women on the basic state pension on average receive £145.87 per week compared to men receiving £172.64. It is also worth saying there are around 1.5mn women receiving less than £100 per week – more than three times the number of men in the same situation.
The enormous disparity comes from women being less likely to be in paid work and so they do not accumulate the national insurance credits needed to pay a full state pension. Many women under the basic state pension system will also have derived their state pension entitlement through their husband’s national insurance record rather than their own.
The situation is improving though, with women retiring under the new state pension system on average receiving £164.74 per week compared to £170.50 for men. Unlike the old state pension system women’s entitlement is based on their own national insurance record rather than that of their husband.
Pension credit
While the new state pension is more generous than the old one – at just over £9,000 per year – it still only covers the most basic of needs. While many women have other sources of income to draw on during retirement there will be many who do not, and they face a difficult time trying to make ends meet.
Pension credit is designed to help the poorest pensioners by boosting their income up to £177.10 per week if they are single or £270.30 if they are part of a couple. You may be entitled to more if you claim other benefits such as attendance allowance. Pension credit also acts as a gateway to other benefits such as help with bills and NHS costs, and the over 75s can also claim a free TV licence. It is a valuable benefit that can boost income by thousands of pounds over the course of a retirement.
Despite this, pension credit remains a hugely under-claimed benefit with recent figures showing only 66 per cent of those who are entitled to claim are doing so. This equates to roughly 850,000 households who are missing out on as much as £1,900 per year. This is an enormous amount of money that could significantly improve the standard of living for many pensioners, particularly in the current times where heating bills are spiralling and food prices are also rising strongly.
The Department for Work and Pensions launched an awareness campaign in late 2019/early 2020 aimed at boosting take-up. This was primarily through adverts in doctors’ surgeries and Post Offices. However, the pandemic will have hampered the success of these efforts and more needs to be done to boost awareness.
Pension credit myths
There are also several misconceptions surrounding eligibility for pension credit that need to be addressed. One is that you cannot claim it if you own your own home, another is that you are not eligible if you have savings.
You can still claim pension credit in both these cases. If you have £10,000 or less in savings and investments this will not affect your pension credit. If you have more than £10,000, every £500 over £10,000 counts as £1 income a week. For example, if you have £11,000 in savings, this counts as £2 income a week.
Gender pension gap is not a pension problem
It is to be hoped there will be less of a need for pension credit in the future as more women retire on the new state pension and will also have accrued workplace pensions through auto-enrolment. But it is worth saying that the gender pensions gap cannot be solved by pensions alone.
The gender pension gap is not so much a pensions issue as a workplace one. Women continue to face several hurdles throughout their working lives that threaten to throw a spanner in the works of their retirement planning.
The first is of course the gender pay gap itself – if women are not paid the same as men then they cannot contribute as much as them either. Secondly, time spent out of the workforce either looking after small children or elderly relatives derails retirement saving at both ends of women’s careers.
If women do return to work, then it is often on a part-time basis and they can struggle to receive the same career development opportunities they otherwise would have.
Menopause is another issue that could impact on women’s ability to build their pension wealth. According to research from Bupa and the Chartered Institute of Personnel and Development, almost 1mn women have left the workforce due to the symptoms of menopause.
On average menopause happens around the age of 51 but can affect women for many years either side. It is not a subject often talked about and while more employers are introducing policies on how to support affected workers there is still a long way to go.
Potential solutions
There are several options that can help address the gender pension gap. The first, and most obvious, is to boost auto-enrolment. The 2017 auto-enrolment review proposed reducing the minimum age from 22 to 18 as well as removing lower earnings limits. This opens auto-enrolment to a new tranche of people and people will be able to save more.
The government said it would aim to make these changes in the mid-2020s but as yet no progress has been made. MP Richard Holden's recent private members’ bill on the matter was received by the pensions minister who said the changes would be addressed in the “fullness of time”. But it is vital these changes are addressed sooner rather than later.
Another factor that could potentially make a big difference is flexible working. This includes job shares, compressed hours and home working. While previously frowned on by many employers it has been embraced by many during the pandemic.
The effects are potentially far-reaching, enabling working mums and dads to structure their time more effectively to share childcare responsibilities. It also has the potential to help older workers remain employed for longer and could be a game changer for women impacted by menopause. Recent figures from the Office for National Statistics showed flexible working would be a key factor encouraging older workers back to the workplace.
We have a long way to go to address the gender pension gap, but with these changes we can make real headway.
Helen Morrissey is senior pensions and retirement analyst at Hargreaves Lansdown
