The journey towards achieving gender equality in UK pensions started back in 1990. However, today, there are still men and women who, despite having identical employment histories, receive different pension amounts.
One of the key reasons for this is the inherent complexities involved in fixing historical issues, complexities that are particularly striking in the area of GMP equalisation.
And we are finally seeing the green shoots of recognition from trustees and other stakeholders that GMP equalisation is achieving beneficial results. While for many members the impact of GMP equalisation is small, for some the impact has been significant, with back payments occasionally exceeding £10,000. It somehow gets forgotten, but GMP equalisation is ultimately all about ensuring fair benefits between men and women. This equality is something we should be proud of achieving.
Moreover, GMP equalisation has been a catalyst for addressing a range of historical data issues, on which many schemes had never quite managed to bite the bullet. The positive impact of these data enhancements will be realised for generations to come.
Looking beyond GMP equalisation, where have we got to in achieving gender equality across the UK pensions industry?
Here I’m focusing on ‘structural’ elements – in other words the features of pension schemes that lead directly to inequality. But it’s important to note that even if schemes provided exactly the same benefits to men and women, inequality in pensions would remain. Women receive 35 per cent less from pensions than men (based on DWP data for 2018 to 2020), largely due to gender pay gaps. In addition, women have historically completed fewer years of pensionable service, as they are more likely to work part-time or take time away from employment, due to caring responsibilities. There is also the prevailing impact of past inequalities in state and occupational pensions.
The drivers of the broader inequalities that drive the gender pensions gap are even more complex than GMP equalisation! However, if we do at least fix structural inequalities in our pension schemes going forward, this should support a narrowing of the overall gap over time.
So, let’s start with defined contribution. Auto-enrolment has significantly expanded the membership of these schemes across all demographics. Levels of contributions are often too low to achieve an adequate level of retirement income, but they must be set equally for men and women. The retirement options available are the same for all, and insurers have had to offer the same annuity rates to males and females since December 2012. So, I’m going to suggest that we are in a good place in DC.
What about the state pension? Since 2018, the state pension age has been aligned for males and females, meaning we can say equality has been achieved looking forward. However, celebrations are cut short by the significant historical issues that remain, specifically in relation to the “WASPI” women. Until these matters are resolved, we obviously can’t call this a ‘win’.
This takes us back to defined benefit schemes. Since 1990 and the ‘Barber’ judgment, pension eligibility and benefits have had to be equal between men and women which, since the 2018 Lloyds judgment, includes GMPs. However, one area of inequality remains. Many DB schemes continue to use sex-specific terms for member options such as transfer values and cash lump sums. There has been a clear trend in recent years towards providing unisex terms, however, a significant minority of schemes do not do so, meaning different benefits for men and women.
The primary justification for retaining these differences relates to disparities in life expectancy between men and women. The drivers of these differences are very uncertain, including the extent to which they are due to ‘nurture’ or ‘nature’ effects. Furthermore, the gap has closed considerably over time, such that sex is now arguably a much less significant driver of life expectancy than other socio-economic factors. Given this and the comparison to insurer requirements, it is difficult to justify not using unisex terms.
The world has a long way to go to achieve gender equality but for the UK pensions industry, the finish line is not too far off. The task remains to finally finish whatwas started in 1990, to ensure pensions depend on savings decisions, not whether we are male or female.
