I wonder what the Gender Pensions pay gap is and what businesses can do about it?

The gender pay gap has been a topic of significant debate over recent decades, but an equally yet less frequently addressed issue is the gender pensions pay gap. This gap refers to the disparity between men and women in terms of the amount of retirement savings and pension benefits they receive. Understanding this pay gap is crucial as it impacts the long-term financial security of women, particularly as they get to retirement. Furthermore, businesses play an important role in addressing and mitigating this gap. This article discusses reasons why there is a gender pension pay gap, and what employers can do to combat this.

What are the reasons for the Pensions Pay Gap?

As a whole, the gender pensions pay gap is largely a consequence of the disadvantages women face throughout their careers, leading to significant disparities in retirement income compared to men. Several factors contribute to this gap. These include:

• The gender pay gap
• Increased time out of the labour market to care for children
• Women’s lower state pension entitlement

These factors, when combined, cause a substantial pay gap which persists into retirement which without reform, will only become a wider issue.

The gender pay gap and childcare: How does it affect pensions?

Childcare has an indirect effect on the pensions pay gap between men and women. As women are likely to be the primary caregivers for children, women are the ones more likely to reduce their hours or leave work to care for children when childcare becomes too expensive. The movement of women in part-time roles also influences the gender pay gap. Fortunately, the gender pay gap is at an all time low for full time workers, with the difference in pay being 7.6% in 2022. However, the situation changes when part-time workers are taken into account. Because more women work part time than men (5.4 million compared to 1.7 million in 2018) the gender pay gap is greater when including part timers. 

The knock-on effect which the pay gap has is simple. Women earn less therefore their percentage of pension contributions is smaller. It also could mean that women may not earn enough to be enrolled in the company’s pension scheme. A study by the Chartered Institute of Insurance at the end of 2018 showed that by the time a woman is 65-69, her average pension wealth is £35,700, which is roughly a fifth of a man’s pension that age.

Women’s lower state pension entitlement

Historically, state pension systems in many countries have been designed around the assumption of continuous, full-time employment. This often disadvantages women. Due to career breaks, caregiving and part time work as discussed above, women are less likely to meet the full contribution requirements for maximum state pension benefits. As a result, they receive a lower state pension than men, leaving women in more vulnerable to financial insecurity.

This discrepancy in state pension benefits highlights the need for reform in pension systems to better accommodate the diverse work patterns and life circumstances of women.

What can businesses do about this?

Businesses are in a unique position to influence the gender pay gap. By taking conscious measures, businesses can ensure that their female employees are not disadvantaged in retirement. Here are some strategies that businesses can adopt:

• Promote equal pay: Businesses should regularly review their pay structures and ensure that men and women are paid equally for equal work. Furthermore, promoting gender diversity in more senior roles will help close the gender pay gap, and consequently, the gender pensions pay gap.
• Offering pension schemes which accommodate flexible working: For example, some companies allow employees to maintain their pension contributions based on full-time equivalent earnings, even if they are working part time.
• Pension scheme flexibility: Offering a flexible pension plan that allows employees to make additional voluntary contributions can help women build their pension savings more effectively.

Conclusion

The gender pensions pay gap is a complex issue which is rooted within systemic inequalities that women face throughout their career. But businesses can play a critical role in addressing this issue and implement fair practises to help battle this gap. By taking proactive steps to support women in building their pension savings, businesses can help reduce the pay gap and contribute to a more equitable future for all employees, allowing for financial security and dignity for women in retirement.

If you have any questions about the Gender Pensions Pay gap, our Peace of Mind Team can provide specific advice and our Document Audit Team can help draft relevant policies. Contact our Employment Team by emailing employment@warnergoodman.co.uk or call 023 8071 7717