A report from the Pensions Policy Institute (PPI), sponsored by the Defined Contribution Investment Forum (DCIF), published yesterday (June 6) stated women need a pension model that is designed around their specific needs and work patterns.
This was because women may find it difficult to build up adequate retirement savings under a "traditional, male, linear savings and investment model".
The PPI suggested pension schemes should offer alternative investment options which are better suited to those who take time out from work, have minimal pay progression and stop and start contributions frequently throughout their lives.
Most DC schemes invest in volatile assets with higher opportunities for returns during the early years of a member’s savings life and then de-risk the investment during the lead up to retirement.
But the report suggested allowing a portion of a woman's’ pension fund to be set aside in an accessible short term investment or ensuring more default funds are invested in alternative assets, which are likely to provide stable long-term returns, could help women to save more throughout different stages of their career.
Women typically take time out of work to have children, are on lower salaries than men, and may stop pension contributions during maternity leave.
Due to this, they often save less for retirement than men.
The PPI found that women’s pension wealth (from defined benefit and defined contribution savings) is about half of men’s pension wealth by their late 50s.
The PPI suggested pension projections should be based around labour market patterns, which would help those with fluctuating working patterns to better plan for retirement.
The DCIF’s vice-chair, Hilary Inglis, said: "The traditional linear working pattern no longer reflects the reality of our working lives, particularly for women, and now also the next generation of savers who favour multi stage lives and careers.
"It is paramount that both scheme trustees and investment managers account for this changing working pattern in the way they communicate with members, but also in their approaches to de-risking as members near retirement."
Due to women taking career breaks or working in multiple jobs throughout their lives to facilitate care responsibilities, they may reach retirement with a number of small pension pots which can be difficult to manage.
The government has committed to tackle this problem by introducing pensions dashboards which will allow people to view all of their pension pots in one place.
PPI’s research has also suggested that individuals are less engaged with smaller amounts of pension savings.
For example, in 2018 Hargreaves Lansdown found that 50 per cent of DC workplace scheme members with less than £5,000 in their pot were engaged, compared to 76 per cent of those with pots of £5,000 to £10,000.
Daniela Silcock, head of policy research at the PPI, said: "While the gap between men and women’s pension incomes is narrowing due to policy and demographic changes, a pension gap is likely to remain unless other structural changes take place.
"Potential levers involve both government and industry, and range from restructuring investment offerings to better account for women’s higher life expectancies, to changing the makeup of trustee boards in order to ensure that the needs of all vulnerable groups are given higher prominence."
Earlier this week (June 3), consumer rights group Which called on the government to address the gender pension inequality by introducing a £2,000 cash boost for first-time mothers.
amy.austin@ft.com
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