To reduce the gender pension gap women need to think and talk about pensions from the start of their careers.
There has been much focus of late on the gender pay gap. Just as important and linked, however, is the gender pension gap and experts say that education about that needs to begin at the start of people’s working lives.
Scottish Widows recently published a report on the gender pension gap, which showed that many more women and men are saving enough money for their pensions, but women will on average have to keep earning until they are 100 to equal men’s pensions earnings.
Jackie Leiper, Managing Director, Workplace Savings at Scottish Widows, says the most significant factor in narrowing the gender pension gap has been auto-enrolment in 2013, although it took until 2016 for it to roll out across the country, having started with the larger employers. Jackie says it has been hugely successful because it has reached even the smallest employers and has brought 10 million more people into workplace savings schemes. Auto-enrolment currently kicks in when employees turn 22. Scottish Widows would like to see this age threshold removed to get young people into the habit of saving early. “It creates better engagement with long term planning,” says Jackie.
She adds that compound interest means that the longer you pay into a pension the more you get out of it. Scottish Widows would also like to see the earnings threshold of £10K removed. It argues that the earnings threshold can exclude part-time workers – 75% of whom are women – and it means that people who have a number of part-time jobs which individually bring in less than £10K in order to get flexibility and to avoid high childcare fees do not qualify for auto enrolment. Jackie says: “The UK has one of the the highest rates of part-time workers in the world and a big part of that is due to childcare costs. We cannot fix the infrastructure issues, but we do call loudly for better childcare infrastructure.”
She adds that other countries have a more family friendly approach to the childcare pension issue, for instance, Sweden pays workers who work 80% of full-time hours 100% of a full-time pension.
Jackie also says it is vital that women realise the impact of having children on their pension and go into starting a family with their eyes wide open. Many women drop their pension contributions or stop paying in at all when they have children if they take time out or reduce their hours and that has an impact on their pension contributions which is cumulative. The gender pay gap also widens after women have children. Moreover, it’s not just their pension contributions that women lose. Many employers have schemes whereby they match employee contributions. “If we can get women to think about saving more before they start a family when they are closest to wage parity with men that would give them some breathing space if they want to take time out when their children are young or to work part time,” says Jackie.
She would like to see more open discussion about pensions in the workplace, particularly at crucial stages in a person’s life, and in the home. Motherhood marks a big milestone, she says, and some employers do not continue pension contributions during maternity leave. “Many women don’t even realise that,” she states. When it comes to the home, Jackie says that not many women discuss their pensions with their partners, she says. “We balance other household bills together, but men rarely cut back their pension when children are born,” she notes. Moreover, she adds, pensions are rarely taken into account in asset division on divorce. “We recommend that pensions should be split on divorce. A lot of women over 50 find themselves with virtually no pension provision if they have taken time out to have children and then divorce.” Jackie says that pensions are not well understood in the legal system and that more work needs to be done on this.
Other areas where Scottish Widows is keen to see reform include self employment. They are calling for the self employed to be incorporated into the auto-enrolment scheme as a priority.
Jackie says that there needs to be more lifetime planning about pensions, stating that if people checked in on their pension planning regularly and got an idea of how much their retirement income might be, it would help people to budget better and set better financial goals. She adds that open banking has made this much easier so you can see your financial situation across providers. “Really good financial advice should be holistic and family related and pensions should be part of that,” she states. “Pensions schemes were quite paternalistic in the past. Now there is more personal responsibility. That brings more freedom, but puts more onus on us as individuals.”
So what does the future hold for pensions? There is an emphasis on simplifying the pensions system – the government plan to bring in a pensions dashboard, for instance, which will allow people who have multiple jobs in a lifetime to see how their different pension schemes are working – and on communication.
Scottish Widows is using technology to engage more with people about their pensions, for instance, through gamification and technology that allows you to see ‘the future you’ in various financial scenarios. There is also an interest in using nudge theory to prompt people to think about their pensions in the same way they think about their everyday finances. “It’s important to normalise pensions,” says Jackie.