Great to see @DWP publishing an official estimate of the size of the gender pension gap. This has been the first action that @ProspectUnion has called for in every report we have done on the issue. Much credit to Laura Trott.https://t.co/kdUbOeeXw9
— Prospect Pension (@ProspectPension) June 5, 2023
It is good to see a Union get behind a Conservative led Government initiative. Laura Trott has come in for some (IMO unwarranted) criticism for her recent performance on question time and I share with Prospect admiration for this report.
Yesterday saw a step in the right direction for addressing the Gender Pension Gap with the Government announcing the way it plans to measure and monitor it
As the pension industry congregates in Edinburgh today, it’s worth remembering that our agenda and the Government’s should be aligned. Unfortunately I see very little of Government at the PLSA Conference and hope that the timely publication of this report will remind us that there are bigger issues facing the country’s pensioners than can be dealt with by Pension Investment.
The Gender Pension Gap is defined by private pension savings
The DWP defines the Gender Pension Gap (GPeG) as the percentage difference between female and male uncrystallised median private pension wealth around normal minimum pension age (55) for those individuals with private pension wealth. Uncrystallised private pension wealth includes that which is active or preserved, therefore not in payment.
- the most recent data (2018to 2020) shows a GPeG of 35%
- for employees eligible for AE, their GPeG is 32%
So “pensions” is defined in terms of pot not income. These figures do not relate to state pensions and benefits or the wealth accumulated outside of pensions. “Uncrystallised” means – before people have started drawing income and stripping out tax-free-cash. It includes income from DC and DB pensions.
Put at its simplest, women are more than a third less wealthy than men from the workplace pension system and though AE is making a difference, for people solely reliant for their pot on AE contributions that difference is only narrowing the gap by 3% of total wealth.
What difference is auto-enrolment making on the GPeG?
The observation on AE needs to be seen in the light of the overall UK pension system, the labour market, as well as personal choices and circumstances.
- the participation rate for AE eligible female and male employees across the whole economy in 2021 was 89% and 87%, giving an AE participation gap of minus 2ppts.
- among adults aged 16 to 64, the male employment rate in 2022 was 79% and the female employment rate was 72%.
- the total annual contribution into workplace pensions for AE eligible female and male employees in 2021 was £52.0 billion and £62.6 billion, giving a contribution gap of 17%. This means the percentage difference between the total annual contribution into workplace pensions for AE eligible men and women is bigger than the percentage difference in the employment rates.
More women participating in pensions – less money going into their pots. That % difference in contributions is bigger than the difference in employment rates, meaning that while more women participate, they get less paid into their pots.
Auto-enrolment is reinforcing the pensions gender gap though at a slightly slower pace.
Put another way, without AE and with no pensions at all, women would be even worse off, both in absolute terms and by comparison with men
What does this look like in pounds shillings and pence?
These are the figures for those who aren’t contributing using auto-enrolment
These are the figures including AE workplace pensions
AE is providing more wealth and is slightly reducing the GPeG ( as mentioned above)
The Gender Pension Gap is smallest when considering private pension wealth held by individuals with both Defined Benefit (DB) and Defined Contribution (DC) pension wealth, compared to individuals with only DC wealth or only DB wealth.
What this third chart shows is that the biggest problems for women are around the lack of DB wealth. Where a woman has only DC wealth, she is likely to have 60% less wealth than her male counterparts. But the actual amounts of wealth for DC only savers are around 1/6th of the wealth with those on DB. This is a different story but one which is even more important.
This is because the group with the highest GPeG of 60% is the largest in size with 792,000 men and 575,000 women. The second most common type of pension wealth is DB only with 423,000 men and 589,000 women.
This group has a GPeG of 44%. The smallest GPeG of 34% is within the group of those that have DB and DC pension wealth. This is also the smallest group in size with 414,000 men and 321,000 women.
This tells us that though auto-enrolment is helping, if people don’t have DB wealth, they are – whether men or women, in pension poverty (at least in terms of privately accumulated “wealth”).
As far which age-bands see the widest GPeG , the GPeG is driven by labour trends
The size of the GPeG varies according to age bands. The GPeG is smallest for those aged 35-39 (10%) and then increases to 47% for those aged 45-49. The GPeG then decreases again in the later years of working life. This pattern is similar to the trajectory of the Gender Pay Gap which shows a relatively small gap until the age of 40 when it approximately triples due to different labour market trajectories of men and women.
With less and less DB accrual amongst younger workers, the bigger consideration is that the “have nots” of chart 3, tend to be younger. The sad conclusion that we must take away from this report, that the biggest determinant of pensions wealth is not gender, but access to defined benefit accrual.
Although the report wrings some comfort from the success of AE to narrow the GPeG , the reality is that the collapse of DB accrual in the private sector dwarfs the problem with gender inequality. As a nation we are the worse off for losing DB, but in gender pension terms, a poorer DC system may be slightly less unequal in outcomes.
Questions left unanswered
The report notes that during the first decade of the century, the GPeG halved and has since increased, touching 40% at one point. No explanation for this is given in the report and I’d be interested in answers (email@example.com or use the comments box)
It would also be interesting to know what the gender pension gap is for the state pension.