I’ve turned back to the research done by State Street and People’s Pension on the pension adequacy. The report came out a while ago and it’s not had the attention it needs or deserves, you can read it here. It has some interesting things to say about the gender pay gap

It recommends that workplace pension providers should explore the possibility of communicating with female members who work part-time, in their mid-40s and beyond to explain the ramifications of not having up to an extra two days a week of work would have on the size of their pension pot.

As Jenna Gadhavi points out in a recent blog, many women who leave the labour market to have and bring up children, miss out not just on a wage but on  future pension rights, in whatever form they build up.

The People’s Pension calls for providers to speak with women who have deferred pension rights but no current contributions and nudge them back to work. But this assumes that women want to  return and indeed that it is financially viable for them to do so.

Commenting on Jenna’s article, Norma Cohen posts on linked in.

It is becoming increasingly clear that provision of high-quality, affordable childcare is a necessity, not a luxury, in a modern economy. Given the rising proportion of elderly people in the UK compared with those of working age, it is clear that government policy must aim at helping those of working age be as productive as possible. That means making it much easier for women – a majority of university graduates – to both raise families and participate at work.

I agree, the problem goes much deeper than making working women aware of their need to pre-fund pension contributions prior to having their family. Norma sees a systemic problem and calls for a systemic solution.

People’s claim that the average women has £7,000 pa less in pension rights than men not just because of the gender pay gap , but because they are unproductive and pay no pension contributions when men are forging ahead.

Getting the balance between caring for young families is one thing, but we also know that the majority of elderly care is provided by women and usually on an unpaid basis.  Many women swap a lifetime of paid work for a lifetime of unpaid caring- and have few lower pension rights/pots as a result.

Redressing the balance

There is within the pension system, one beacon of hope for women and that arises from legislation enacted earlier in the century that means that women cannot be given lower annuity rates than men and this  extends to scheme pensions , even when the pension entitlement is linked to defined contributions.

This means that if a CDC pension entitlement is based on the build up of money in a notional pot, that pot cannot pay a bigger pension to a man than a woman, even if a man is likely to get the pension for shorter than a woman.

By comparison, if a woman and a man had an equal pot and set out to draw down the same amount from the same age, the average man would have a much better chance of the drawdown lasting as long as he does. It’s down to women living longer than men.

This goes for the state pension too, which pays the same to women as men (provided both have equivalent national insurance records = I fear that many women have inferior records and this too needs to be addressed).

The conscious decision of the European and UK courts to provide a bias towards women in unisex annuities and equalized pensions has meant that women are benefiting from better pension rates than previously.

But defined contribution pensions that pay out as cash or through drawdown or simply roll-up, miss out on this female pension perk.

The actuarial assumptions that underpin CDC work in favor of women, just as unisex annuity rates do.

Lessons to be learned

People’s Pension is now Britain’s second biggest DC pension scheme (second only to Nest), it looks after the retirement interests of millions of women.

Its work with Ignition House shows that the problems for savers are systemic

• Savers are scared of planning for the future as they don’t want to discover the ‘truth’
• Savers also underestimate the financial risk of growing old and don’t understand how inflation can impact their savings
• The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up.

Can we expect people’s behaviors to change with nudges? I suspect that the problems unearthed by the “New Choices, Big Decisions – 5 years on” cannot be nudged away.

Systemic problems need systemic solutions. Is it now time for People’s Pension to consider offering all its members the option of a scheme pension paid from a pooled pot where women can benefit from the same rates as men and enjoy freedom from pension freedoms that can work against them?

The options in the Pension Schemes Act (s48) for multi-employer schemes such as People’s Pension present an opportunity for it to systemically reduce the pension gender cap.

Put more bluntly – People’s Pension could (and in my opinion should) go CDC.

Footnote

I would be interested to hear from any experts  who can quantify the beneficial impact of unisex annuity and scheme pension rates.