Pensions  

L&G calls for ‘urgent action’ as gender pension gap stays constant

L&G calls for ‘urgent action’ as gender pension gap stays constant
 

Legal & Gender has called for "urgent action" as the UK gender pension gap remains largely unchanged from 2020 to 2021. 

Research of more than 4.5mn savers in the UK found that in 2021, the gender pension gap was 16 per cent at the beginning of women’s careers, reaching 55 per cent at the point of retirement.

Comparatively, this was only a minor change to 2020 when it stood at 17 per cent and 56 per cent, respectively.

L&G said women are left with smaller pension pots at every stage of their career, with the situation worsening significantly as they approach retirement. 

The average pension pot of a woman at retirement (£12,000) was found to be less than half that of a man (£26,000) at the same retirement stage.

The research, which analysed data from members across L&G’s defined contribution (DC) pension scheme clients, revealed that women are always at a financial disadvantage, even at the start of their careers.

The initial gap of 16 per cent widens as women reach their forties, accelerating to 31 per cent as the impact of career breaks and unequal caring responsibilities begin to take effect. 

By the time people can take their tax-free cash at 55, the gap is over 50 per cent and deteriorates further to 55 per cent by retirement.

Women’s gender pension gap vs. men’s pensions, across age groups

 20212020
20s16% 17%
30s17%17%
40s31%34%
50s51%51%
Retirement55%56%

Source: Legal & General

This new data for 2021 showed that the gender pensions gap has decreased marginally across age ranges, but by only one percentage point for the start and end of women’s careers. 

On the current trajectory, women will still be retiring with vastly smaller pension pot sizes than men for many decades to come.

L&G commercial director of workplace saving Katharine Photiou, said: “There are many factors that have led us to this point but very few solutions offered. It’s time women stop being penalised for things outside of their control, like the high cost of childcare, or being paid less than their male counterparts.

“We know that women feel significantly less confident, and are more likely to struggle on knowing where to start, when it comes to making financial decisions. 

Reasons for the gap

There are many reasons identified for the gap, including the fact that women are still paid less and are less likely to be in senior leadership positions, resulting in lower pay and lower pension contributions. 

L&G said they are more likely to take career breaks for childcare or as an unpaid carer and are more likely to work part time or reduced hours, as well as self-identifying as having lower fiscal confidence.

The high cost of childcare in the UK is a barrier to women returning to work after maternity leave, or returning full time, and the means test on benefits can be a driver for capping hours, particularly in certain industries. 

It said 900,000 women in the UK retire early each year due to menopause, meaning women are leaving the workforce at the exact time when their earning potential is likely at its highest.