Much has been written about the gender pay gap. This is the fact that when you take all employees across all types of job and employment type, women earn 14.3 per cent less than men do per hour of work.

The good news is that it’s moving in the right direction. The gap has been narrowing over the years and has dropped from 17.4 per cent in 2019 and 19.8 per cent ten years ago. The bad news is that there is another significant gap that needs addressing. On average, women have about 35 per cent less in their pension pot by the time they hit their mid-50s, leaving them poorer, more dependent and less financially free in retirement. Here’s what you need to know about the “gender pension gap”. 

Why is there a gender pension gap? 

The latest data from the Department of Work and Pensions (taken from 2018 to 2020) shows that by the time men hit 55, the current “normal minimum pension age”, they have about £145,000 stashed away in their private pension savings. Women, on the other hand, have more like £93,000. This isn’t because women are regularly dropping out of their workplace pensions. In fact, 89 per cent of female employees pay into their pension compared to 87 per cent of male workers. Instead, it's down to the simple fact that less is paid into women’s pensions, due to career breaks and the cumulative impact over time of women earning less than men (remember that gender pay gap).

Men in the public sector save just over £8,000 a year into their pension, while women pay in just over £6,000. In the private sector, men pay £2,000 while women pay about £1,500. On top of this, according to the trade union Prospect, there is indirect gender discrimination built into the pension system itself. For example, women are more likely to work part-time and part-time employees are far less likely to be auto-enrolled into a pension scheme.

“Early in their careers, women are just as likely as men to save into a pension,” said Helena Morrissey from Hargreaves Lansdown, an investment company. 

“But the gap grows once women need to take time out of the workforce for caring responsibilities. When they return it is often to part-time work, and so the gap widens into a yawning chasm.”

What can we do about the gender pension gap?

Becky O’Connor, from the pension company PensionBee, said that while society often saw women as the “natural carer”, it was mainly for financial reasons that women were more likely to take time out of the workforce than men.  “Employers typically pay mothers more generous maternity pay than paternity pay, so when couples are deciding who should stay at home, the household income will usually be higher if the mother stays at home,” said O’Connor. 

She suggests that equal paternity pay (not just equal rights to parental leave), flexible working arrangements for new parents and more funding for childcare would enable both mothers and fathers to get back to work and, crucially, start paying into their pension again. 

The gender pay gap also starts to emerge once women pass the average age of a new mother, suggesting that the reason many women are paid less than men can also be attributed to the ‘mothers are carers’ assumption.  Prospect agrees that more affordable childcare would go some way towards narrowing the gap, but also recommends that the government look at pension reform. 

Automatic enrolment, a law introduced in 2012, requires employers to automatically enrol their employees into a pension scheme, but many miss out: anyone under the age of 22 and those earning less than £10,000. Prospect recommends lowering this age limit and removing the earnings trigger, arguing that both exacerbate the gender pension gap. 

What can you do?

 If you’re worried about your own pension prospects, a good first step is to increase your workplace contributions. Even a small boost can make a big difference — paying in 1 per cent more of your salary would add about £30,000 to the typical earner’s pension pot. 

 If you’re out of work or self-employed, set up a personal pension for yourself. Most pension providers will let you pay in small amounts as and when, so you’re not tied into a monthly sum, and you will still benefit from tax relief from the government (a £100 contribution becomes £125, if you are a basic-rate taxpayer). And as taking years out of pension saving is the key reason behind the pension gap, keeping up your own contributions while you’re out of work or do not earn enough to qualify for auto-enrolment will help you avoid your own pension gap. 

 According to Standard Life, the investment company, a one-year pause would cost the average worker about £11,000 in pension savings. A three-year pause would knock £31,000 from your savings and a five-year pause would cost you £52,000. You could also look at the government’s Lifetime Isa. If you pay £4,000 a year into a Lifetime Isa, the government will top it up by £1,000. You can open one if you are between the ages of 18 and 39, and you can keep paying in until you 50. Your money is locked away until you are 60, or if you want to use the money for a house deposit). 

 However you choose to save for your future, make sure that your money is invested in the stock market rather than sat in cash. Over the long-term, the stock market is likely to produce better returns than savings accounts – although there are no guarantees – so investing is generally considered the best way to grow your savings. 

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