Private pension gender gap will persist ‘for decades’

A study by the Institute for Fiscal Studies, published today (March 8), found that this difference is driven “almost entirely” by differences in labour market patterns such as employment rates, hours worked and hourly wages - which particularly diverge for men and women after the birth of a child. 

While the difference will persist in private pensions, the gap between men and women’s average state pension incomes has closed to essentially zero among those born in the early 1950s.

However this is in contrast to those born a decade earlier, with women born in the 1940s experiencing a gap of roughly 25 per cent below their male counterparts.

On the private pension front, women born in the early 1950s have incomes about 45 per cent lower than men.

Research economist and author of the IFS report, Laurence O’Brien, noted that the difference in the private pensions of men and women has narrowed over time but said we can expect a gap to remain “for a long time yet”.

“Policymakers concerned with this gap should see it as part and parcel of labour market issues, as opposed to a completely distinct issue with private pensions themselves,” O’Brien said.

The tax system also plays a role in exacerbating the gap Scott Gallacher, Rowley Turton

The report found that among all 22 to 59 year olds, including those not in paid work, 59 per cent of women were saving into a pension in 2019 compared with 66 per cent of men.

Average total annual pension contributions were £2,600 among women and £3,400 among men.

The report noted that these gaps in contributions widen significantly after children had women.

Two years before the arrival of a first child, prospective fathers and mothers make, on average, similar contributions to their pension. 

However, six years after the arrival of the child, average contributions made by fathers are more than twice the average contributions made by mothers. 

Much of this gap is driven by differences in employment rates, hours worked and hourly wages that “open up” at this point.

Among private sector employees, the gender gap in pension participation is driven entirely by the fact that a higher share of women earn less than £10,000 per year and so do not have to be automatically enrolled into the workplace pension scheme by their employer.

Commenting on the study, financial adviser and director at Rowley Turton, Scott Gallacher noted that closing the gender pension gap is a complex issue.

“While childcare responsibilities are a significant factor, the tax system also plays a role in exacerbating the gap,” Turton said.

“It's worth noting that the tax system may favour higher earners, typically men, making pension contributions over their lower-earning spouses, typically women. However, contributions made by non-tax paying spouses can also have tax advantages.” 

To address this, Turton said a single-tier tax relief system could be introduced, but he added that this would come with “its own set of challenges”.

“As financial advisers, we play a vital role in helping our clients understand the impact of the gender pension gap on their retirement savings. By encouraging clients to start saving early we can help our clients achieve a more secure and comfortable retirement, regardless of their gender,” Turton said.

jane.matthews@ft.com