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
| 2021 | 2020 | |
| 20s | 16% | 17% |
| 30s | 17% | 17% |
| 40s | 31% | 34% |
| 50s | 51% | 51% |
| Retirement | 55% | 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.
Photiou added: "Industry and government must therefore work together to ensure education and engagement around savings and investments increase. For example, too few know about the flexibility that couples have in being able to contribute to their partners’ pension while they are on parental leave. This is something that can significantly reduce a women’s pension shortfall.”
This comes as earlier this week, the small pots group came together with three recommendations to consolidate the large number of small defined contribution pension pots in the UK, one of which includes the "pot follows members” solution which has been touted before.
In its spring 2022 report, the group - jointly convened by the Association of British Insurers and the Pensions and Lifetime Savings Association - recommended three potential solutions to tackle the issue of small deferred pension pots in the automatic enrolment workplace pension market.
Discussing the L&G data, Responsible Life executive chair Steve Wilkie, said the fact the gender pension gap thrives in this day and age with no sign of a practical solution is nothing short of a “national scandal”.
“This problem should have been addressed decades ago,” he said. “The gender pension gap is narrowing at a snail’s pace and the government urgently needs to intervene.
“The chasm between the retirement incomes of men and women has a huge impact on the retirement finances of millions of people and it’s heartbreaking for many."
Solutions needed
L&G said like the gender pay gap, the pensions gap is a structural and societal problem that will take time to solve.
It recognises that urgent action needs to be taken now and is calling for all companies and DC pension providers to publicly disclose their own gender pensions gap, so that all stakeholders can understand the issue and work to fix it.
To do so, L&G has reviewed its own gender pension gap and will monitor it annually to ensure it is making progress, by reviewing internal support, processes and policies to make changes such as better support for menopause and a review of paternity and shared parental leave.
Current analysis by the firm revealed that there is a 60 per cent gender pension gap for L&G retirees at the point of retirement with an average gap of 32 per cent for current savers.
In addition to disclosing its own gender pension gap, L&G said it is committed to raising the profile of the gender pension gap across the companies it invests in and will continue collating data in order to include it in its stewardship activities going forward, as well as working with regulators, trade bodies and other providers on longer term solutions.
L&G co-head of defined contribution Stuart Murphy, said: “These figures demonstrate the glacial pace of change on the gender pension gap, as well as the need for greater cross-industry collaboration between government, employers, pension fund providers and members to address the scale of the challenge.
“In our view, encouraging full disclosure to highlight the scale of the issue is an important starting point. We are calling for full disclosure from companies and DC pensions providers to publicly share their gender pension gap so that we can better identify and fix this problem.”
The group has also created a working group with 14 of its largest clients with 535,000 members and assets of over £7bn, to help them tackle inequality in their own pension schemes by the end of 2022 and plans to expand this group further in 2023.
In addition to this, L&G submitted a number of recommendations to the Work and Pensions Select Committee in January 2022 as part of the pension freedoms consultation, including reducing the eligibility age for auto-enrolment to 18 and basing auto-enrolment pension contributions on the first £1 of earnings by removing the £10,000 eligibility trigger.
Allowing greater flexibility for couples to pay into each other’s pensions, as well as considering an increasing the maximum allowed, encouraging pay and job progression for part-time workers and examining whether eligibility to means-tested benefits acts as a barrier to women seeking to increase their income and savings ability.
It is also recommending promoting the inclusion of pensions in divorce proceedings and prioritising the provision of suitable and affordable childcare to encourage women to work more hours.
Murply added: “We are also making a call for regulators and law makers to look at reform; including dropping the minimum age of auto-enrolment, abolishing the auto-enrolment minimum salary threshold and provide further support to help families with childcare costs.”
sonia.rach@ft.com
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