Women up to 45% worse off at retirement in 'intrinsically biased' pensions system

Women are retiring with 25 per cent to 45 per cent less in their pension pots than men due to an "intrinsically biased UK pension system", analysis from Barnett Waddingham has found.

It revealed that the gender pensions gap begins to diverge most clearly after the age of 32, with men contributing up to £1,500 per annum more into their pension than women.

This is despite contributing the same percentage of salary, with Barnett Waddingham highlighting this as evidence that the gender pay gap is at least partially driving this trend.

However, several additional factors were cited alongside this, including women being disadvantaged by career breaks and an “intrinsically biased UK pension system”.

In particular, the provider argued that the pension system is "failing" to support mothers, after analysis found that a woman taking two 12-month career breaks in her early thirties can expect to have 10 per cent less in her pension pot at retirement compared to a woman with no career breaks.

Furthermore, whilst a 35-year old would need to increase contributions by an additional 1 per cent of pensionable pay to make up this shortfall, this increases to around 6 per cent if they wait until age 55.

This also follows recent research from Now Pensions and the Pensions Policy Institute, which found that nearly half (43 per cent) of working single mums, around 400,000 women, are currently 'locked out' of auto-enrolment.

Indeed, Barnett Waddingham argued that the design of the auto-enrolment system is "disadvantaging women", with some schemes reporting up to three times more women remaining under the earnings threshold of £10,000 compared to men.

Commenting on the findings, Barnett Waddingham policy and strategy lead, Amanda Latham, stated: “Whilst society has evolved, the pension system has not, at least certainly not at the same pace. Mainly focussing on the needs of the ‘traditional nuclear family’, the design has not changed to reflect the way we live today.

“As such, the system is intrinsically biased towards men, creating a stark disparity in wealth at retirement.

“The driving force behind the gender pension gap is clearly the gender pay gap, especially in the high affluence group.

“Disparity in income is causing a knock-on effect on pension wealth, despite, by and large, women contributing the same proportion of their salary to their pension as men. But other important factors are at play."

She added: “It’s clear that women are disadvantaged if they have children or have other family caring responsibilities, as the resulting hit on pensions is stark. And with more women working in lower skilled or zero-hour contract roles, too many are falling outside the auto-enrolment threshold.

“It’s therefore not enough to simply say that women need to contribute more to close the gap. Instead, we need to consider fiscal, behavioural, and societal issues collectively, and work to create a more robust and inclusive pensions framework that offers fairer solutions for all.”

Indeed, Latham has highlighted a number of policy considerations that could help close the gender pensions gap, including a review of auto-enrolment rules, with a specific call to remove the minimum earning requirement “sooner rather than later” and a suggested increase to minimum contributions.

Industry experts have previously called for the government to introduce further auto enrolment reforms in order to support savers, particularly amid the pandemic, with The Investing and Saving Alliance also recently calling for an increase in minimum contributions.

Latham also suggested a review of state pension provision and a move to flat rate of pension tax relief, emphasising that a 30 per cent flat rate would typically increase a women's total amount of pension savings by 35 per cent.

She also emphasised the importance of collecting further data on people identifying as transgender or non-binary, emphasising that the evidence base on inequality of employment outcomes by sexual orientation is "weak and inconsistent".

"What is measured is what matters when we look to create change," she continued.

"To meaningfully develop a system that works for everyone, data needs to be collected and reported to understand progress and the impacts of policy changes."

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