Mind the Gender Pensions Gap

The Budget is out. The mid-terms are done. So, let’s get back to the really big topic: pensions. I thought this week we’d have a deep dive into something that doesn’t get talked about enough, the gender pensions gap. By looking at its present, and possible future, we can shine a light on the challenges facing women in (and for that matter outside) our pensions system, celebrate some progress made, and think through what needs to come next.

The Gap

Let’s start with the bad news: the UK’s gender pensions savings gap is big. Really big. Women are currently approaching retirement with 48 per cent (or around £5,000 income per year in human speak) less private pension wealth than men on average. The OECD reckons that gives us the second highest gender pensions gap amongst advanced economies – not a league table we want to top.

The Progress

The Crystal Ball Says:

Here’s what the chart is telling us:

• More women have been going to university than men since as far back as the 1990s, and that gap has slightly widened over the past decade or so to 4-in-10 women vs 3-in-10 men. Over time higher levels of educational outcomes have seen women’s pay rise faster men’s (closing but far from eliminating the gender pay gap).
• Men have also been more affected by the decline in private sector and self-employed pension saving. Only 4% of the fully self-employed (disproportionately men) contribute to a pension vs 92% in the public sector, where women are almost twice as likely to work (32% vs. 17% of men).
• The roll-out of automatic enrolment from 2012 has also disproportionately brought women into pension saving. You will have rightly heard that the £10,000 earnings threshold before an employer is obliged to enrol an employee into pension saving impacts women working part time. But because that threshold has been frozen, while the minimum wage has risen significantly, the vast majority of even part-time workers are now brought into pension saving (in 2012 70% of women employees were covered by automatic enrolment, but that had risen to 84% by 2025).

Let’s put those trends together for a punchline that I think will surprise you. Today, a higher proportion of working women (74%) than men (72%) are saving into a pension.

Mind the (pay) gap

The gender pay gap has narrowed over recent decades, but the significant remaining gap most clearly reflects the very uneven impact of having children on women and men’s earnings. There is of course the direct impact on women’s pensions of the period on maternity leave. The pension implications of that are why we recently introduced changes to the local government pension scheme to so that a mother’s pension continues to build up during maternity leave as if they were receiving normal pay. But the main impact of having children on pay, and therefore pensions, is longer-term and shown by our next chart, with significantly lower pay growth in the following years (associated with moves into part-time and more flexible work).

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Where Next?

The evidence is also clear that the gender pensions gap is about far more than the pensions system – with the labour market centre stage. The expansion of childcare in recent decades may help on this front, but there is no sign that it is eliminating the very different impacts on earning trajectories that having children has in the UK (although we are seeing more men and fewer women working part-time).

But let me end on another policy area with a big impact on the gender pension gap that has had next to no attention: how we divorce. Despite pensions being the biggest assets we have outside housing, the vast majority of divorce settlements do not include any provision on the pensions front whatsoever. This is in part why pensions featured prominently in a recent Ministry of Justice consultation on improving our approach to divorce.

I hope this gives you a flavour of the pondering I have been doing on the gender pensions gap. My job is to make sure we have a pensions system that people are confident gives them a realistic prospect of a comfortable retirement. And around half of people are… women.