Women in their late 50s have around 50 per cent less pensions savings than men, meaning they will experience lower standards of living in retirement on average than men and a higher chance of suffering deprivation or poverty in retirement, according to research from the Pensions Policy Institute (PPI).
DC pension schemes could help close the gender pensions gap through a number of steps. They could review their de-risking strategies, which have largely been designed around a traditional, linear, male working and saving pattern. Increased investment in alternative assets may negate the need for significant de-risking, says the report.
Pension investment options could take more account of longevity risk – women’s greater life expectancy of around two and a half years longer than men means that a woman either needs to draw a lower income or have saved more than a man.
The report argues communication materials could be better tailored to women’s needs and attitudes to risk and improved diversity on pension trustee boards would help to further ensure the needs of all members are properly considered.
The research identifies significantly lower confidence amongst women in managing financial decisions. Only 24 per cent of young women are very confident in managing financial decisions compared to 48 per cent of young men.Women are also more risk averse than men and are more likely to choose “safer options” when given financial options. An additional factor is that women over State Pension age currently receive less from the State Pension than men.
The main driver behind the gender pensions gap is the result of differences in working patterns, as women are far more likely than men to leave the labour market or work part time in order to provide care to children or other family members. In 2018, 1.81 million women were economically inactive because they were looking after family or home, compared to 223,000 men.
Women tend to earn less than men and are less likely to be promoted; the ONS’s 2018 Gender Pay Gap report revealed a gap of approximately 18 per cent less than men’s earnings. Women who take time out are less likely to experience the same pay progression rates as men and are more likely to work in lower paid jobs. Women are also less likely to make pension contributions for years when they are not working, so they find it even harder to build up adequate retirement savings.
The DCIF, which has sponsored the research, is calling on DC pension schemes to review their approach to de-risking, cultivate more diverse trustee boards, better tailor member communications and provide more education on risk and retirement planning
It is also calling for policy changes such as allowing bridging contributions, better financial education in schools, and easier pot transfers could also have significant benefits.
PPI head of policy research Daniela Silcock says: “While the gap between men and women’s pension incomes is narrowing due to policy and demographic changes, a pension gap is likely to remain unless other structural changes take place. Potential levers involve both government and industry, and range from restructuring investment offerings to better account for women’s higher life expectancies, to changing the makeup of trustee boards in order to ensure that the needs of all vulnerable groups are given higher prominence.”
DCIF chairVivek Roy says: “While the gender pay gap is frequently in the public eye, fewer people are aware that a gap also exists between men and women’s pension savings. We are delighted to have worked with the Pensions Policy Institute to draw attention to this important issue. This paper considers how the gap has arisen and considers how to close it. The good news is many more women are saving into pensions as a result of auto enrolment. However, the industry can take some important steps to close the gap, such as making sure that women are well-represented on decision-making boards, meaning that their vital input will filter into every stage of the savings journey.”
DCIF vice-chair Hilary Inglis says: “The traditional linear working pattern no longer reflects the reality of our working lives, particularly for women, and now also the next generation of savers who favour multi stage lives and careers. It is paramount that both scheme trustees and investment managers account for this changing working pattern in the way they communicate with members, but also in their approaches to de-risking as members near retirement. It is positive to see that improvements are being made, but there remains much to be done to ensure the pensions pay gap is reduced further.”
