Closing the gender pension gap

8th March, 2022

  • International Women’s Day on 8 March aims to celebrate the achievements of women, raise awareness of bias and take action for equality.  This year’s theme is #BreakTheBias, a call to action for accelerating gender parity.

    As a pension trustee, this gave me cause to reflect on gender equality in pensions. Trustees are taking action to remove the effects of GMP inequality for both men and women. However, the  “pension gender gap” – the difference between the average male and female pension – remains.

    Research carried out by the OECD last year[i] revealed that women in the UK aged 65+ receive 40% less pension income on average than men.  As a result, women are at greater risk of poverty in retirement than men. The gap is much higher in the UK than that experienced across other OECD countries and about twice the size of UK gender pay gap.

    Why is there a gender pension gap?

    A significant driver is labour market differences between men and women. Women who work full-time hours tend to earn less on average than men. They are also more likely to work part-time, both resulting in women making lower contributions towards their pension savings on average, than men. Women are also more likely to fall below the earnings trigger for auto-enrolment, take time out of work to fulfil caring responsibilities or to not work, all of which may lead to gaps in their pension contribution history. Behavioural and social factors such as financial literacy, communication and risk aversion also play a role in exacerbating the gap.

    What actions can trustees take to level the pension gender gap?

    Some actions will be the remit of policy makers and employers, rather than trustees. Nevertheless, there are ways in which trustees can address some of the drivers of inequality for their scheme members.

    • Provide targeted financial education – Financial literacy is an important factor to ensure members have the knowledge and understanding to make choices that will affect their retirement income. Education materials such as calculators can demonstrate the impact of joining and contributing to a retirement plan, of different levels of pension contributions, working reduced hours and taking career breaks.
    • Review communication style – Member communications should be reviewed to minimise bias, be inclusive and be more representative of the intended membership. Trustees could consider using a wide range of communication styles, such as personalised videos, social media, newsletters and presentations, some of which are more likely to appeal to women.
    • Review communication effectiveness – Analysis of communication effectiveness will help trustees to understand if their communications are being read, signposts are being followed and actions taken, and whether there are any differences in male and female behaviour.

    Review default DC funds and investment strategies – Default funds and strategies tend to be gender neutral.  As women tend to contribute less to retirement savings plans and have a higher average life expectancy, trustees may wish to take advice as to whether their default options provide the appropriate balance of risk and reward and whether the lifestyle policies appropriately reflect career break and part-time working patterns.

    • Promote survivor pension for DC plans – DC members who opt for survivor benefits can protect their partners from the risk of loss of income. Trustees may wish to consider their communication of survivor pension options to members, although this is not thought to be a substitute for tackling pension inequality.

    Break the bias

    Pension inequalities have developed over many years and it’s unlikely that the gender pension gap will be closed overnight. While there are a number of factors at play, the earlier all members start to plan their financial future and retirement, the better their outcomes might be. And as trustees, we may also have a role to play to help #BreakThe Bias.

    [i] https://doi.org/10.1787/f7b48808-en.

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    • Published bySarah Brough

      Sarah joined Dalriada from the Government Actuary’s Department where she was Deputy Chief Actuary of Funded Schemes for 10 years. She has more than 25 years’ experience in providing advice to public sector bodies, sponsors and trustees of DB schemes...

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