With the Gender Pensions Gap currently estimated to be up to 40%1, no more time can be wasted to close it. That is why it is great to see today’s publication of the Women & Work APPG which highlights the key areas where the Government needs to provide targeted interventions to reduce financial inequalities. On pensions and employment, it particularly highlights:
- Making pensions a priority when planning for later life so women have security regardless of career breaks, divorce or cohabitation,
- The number of women in low paid jobs before and after having children, and
- The ‘caregiver penalty’, which many women face after having children or looking after loved ones.
It’s important that people understand the role these factors will play in how much money is in their pension pots when they get to retirement. But despite the Government and private sector’s best efforts, public engagement in pensions remains poor.
Women’s pensions awareness levels must increase if we are to fully bridge the gap and reduce the financial imbalance for women in the workforce when it comes to pensions savings; particularly when considering periods of career breaks, divorce and changing working hours. There are lots of available resources such as MoneyHelper, which provides free guidance on financial matters, from debt to pensions, and the splitting of financial assets on divorce. Savers can also get in touch with their pension provider to find out more about their pension pot size and contribution level. This can encourage the process of starting to consolidate their pension pots, either through their current provider or using the Government Pensions Tracing Service2 to track pensions from previous employers. For tailored support, an increase to the Pensions Advice Allowance would allow more people to access paid advice. This, coupled with increased promotion of government services such as MoneyHelper, will raise awareness of the available support and guidance.
Employers also have a crucial role to play in bridging this gap, particularly through providing greater information to their workforce, for example, through provision of Day One Statements. A well thought through Day One Statement tells employees everything their employers do to support their health and wellbeing, and helps increase their awareness of their rights and make the most of benefits. This can be a challenge, particularly for small businesses, and the ABI has developed a toolkit for employers to increase awareness of what’s required of them and provide guidance on how best to support employees.
But even the best awareness and engagement will not make up for the root causes of gender inequality, such as a women’s earning power and the caregiver penalty. The introduction of Automatic Enrolment in 2012 helped more women than ever save into a pension, yet its eligibility criteria can exclude women who are low earners and multiple job holders. The £10,000 earning trigger assesses whether an individual will pay pension contributions automatically (and is measured separately for each job). This disproportionately affects many women, who are not only overrepresented in lower paid jobs, but make up the majority of multiple job holders, as much as 64%3. This is why the ABI is calling for further changes to Automatic Enrolment to better support savers. If enrolment were to begin from the first pound earned and from the age of 18, this would serve to increase the level of contributions, thereby reducing reliance on the state, and support women in the workforce and low-earners to save for the future. The Government has committed to doing this by the mid-2020s – but further delay will only cause many to miss out.
We also saw the ways women work start to change before the pandemic. Since 2008, 61% of all newly self-employed4 workers were women and they represented over 80% of lower paying occupations such as hairdressing, housekeeping, caring and secretarial work5. Self-employed workers do not have an employer; this means they will not only be making smaller personal contributions (if any at all), but they will also not benefit from the additional uplift of an employer contribution to their pension. They are therefore more likely to face financial uncertainty in retirement. One solution could be to increase the self-employed’s National Insurance Contributions from 9% to 12% (in line with 12% for employees), with the difference diverted to a private pension, to which they also contribute. This is a group who are frequently forgotten about, but who will become increasingly important in an ever increasing digital and gig-economy.
Women also face disadvantages when it comes to pensions savings as a result of the caregiver penalty, which impacts pay and progression, as well as the ability to save for the future. Women who take career breaks or work fewer hours to care for children or loved ones, are often financially vulnerable when separating or losing their partner. Without financial planning and taking the time to understand all the assets they and their partner hold, women could lose out on assets that they are entitled to a fair share of. One intervention the Government should consider is to make pensions sharing orders the default at divorce, so that pensions assets are not forgotten.
Considering some of the challenges women face, there have however been some bright spots. Recent changes announced in the Autumn budget to address the Net Pay Anomaly, which has prevented 1.2m low paid workers (75% who are women), from receiving pensions tax relief on their contributions simply because of an administrative anomaly. Yet Government policy to delay the top-up payments until 2025-26 is far too late, and the Government has not yet been clear on how the top-up will be administered.
These policy initiatives to address the three gaps on awareness, pay and the caregiver penalty are crucial. Ultimately, the way women work is wide-ranging, which is why a package of measures to address the pensions gap they face will have to be as well.
1 https://prospect.org.uk/article/what-is-the-gender-pension-gap/
2 https://www.gov.uk/find-pension-contact-details
3 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/668657/automatic-enrolment-review-2017-analytical-report.pdf
4 https://wbg.org.uk/wp-content/uploads/2021/04/LDP-briefing-1-FINAL-report.pdf
5 https://www.ipse.co.uk/policy/research/the-self-employed-landscape/the-self-employed-landscape-report-2020.html