Extra 19 years of work needed for women to close gender pensions gap

Women will need to work for an additional 19 years to close the gender pension gap, according to analysis from Now Pensions and the Pensions Policy Institute (PPI), which revealed that women face a £136,000 shortfall at retirement age.

The research showed that by the time women reach retirement age (67), they will have average pension savings of £69,000, which is £136,000 less in pension savings than the average man, who will have saved £205,000 in the same period.

This means that, for women to retire with the same amount of money in their pension savings as a man, they would need to work and save for an extra 19 years on average.

As automatic enrolment starts at 22, this means that by age three, girls are already falling behind boys in their provision for later life.

Childcare and career gaps played a key role in this, as the report revealed that, on average, women spend 10 years away from the workforce to raise families or take on other caring responsibilities, representing an average of £39,000 in lost pension savings.

Furthermore, Now Pensions warned that the "spiralling" cost of childcare is a hindrance to many working households, with the average cost of full-time nursery for a child under age two in 2023 being £14,800 a year, rising to more than £20,000 in London.

This means that, by their late 50s, women will have built up just 62 per cent of the pension wealth of men.

The report also pointed out that not only are women typically retiring with less, they are also expected to make these funds last longer, as women live, on average, around seven years longer than men.

A lifetime of earnings and other inequalities results in two thirds of pensioners currently in poverty being women, with single women making up half of this number.

However, the report suggested that there are policy proposals that could help narrow the current savings gap and help savers achieve the retirement they deserve, particularly in relation to auto-enrolment.

In particular, it called for the removal of the £10,000 auto enrolment earnings trigger and the lower earnings limit, pointing out that women make up 79 per cent of workers who earn less than the automatic enrolment earnings threshold, with around 1.9 million women in employment not automatically enrolled into a workplace pension.

If both age and earning thresholds were removed from automatic enrolment, an additional 885,000 young women in employment would become eligible for a workplace pension.

Progress has been seen in this area recently, as the government has confirmed its intent to consult on plans to remove the lower earnings limit at the earliest opportunity, "subject to discussions with employers and other stakeholders on the right implementation approach and finding ways to make these changes affordable".

In addition to this, Now Pensions also called on the government to consider introducing a family carer’s pension top-up and to ensure that affordable childcare is more accessible.

It also encouraged savers to make sure that pensions are getting the proper consideration in divorce, with recent research revealing that this could be a key fault line in efforts to close the gender pension gap.

Commenting on the findings, Now Pensions chair of trustees, Joanne Segars, stated: “It’s hard to believe that by the time a young girl starts school at four, she will already be falling behind a boy of the same age when it comes to providing for her retirement. Yet this is the reality many girls face as they leave education and enter the world of work.

"Despite enacting some important policies in recent years to improve financial opportunities, outcomes and equity between men and women - like auto enrolment and gender pay gap reporting - our report is a timely reminder of the work that still needs to be done. We believe it can and it must.

"Our research is an important step in identifying, defining, and addressing the problem and what we can do as a society to fight for fair pensions for all.”

Now Pensions director of policy and public affairs, Lizzy Holliday, added: “Policymakers have made important decisions in recent years which are already making a substantial difference to the way workers and their employers are providing for retirement.

“Yet, as our research shows, the scale of the gender pensions gap remains vast and will require bolder policy actions. Some of the solutions are broader than traditional pension policy.

"Childcare and gender pay gap issues must be given the urgent attention they require. But setting out the roadmap for the future of auto enrolment including tackling the difficult issue of adequacy in retirement - which affects women disproportionately given lower pension wealth- should be front and centre of next steps.”

Adding to this, PPI senior policy researcher, Lauren Wilkinson, stated: "While the gender pension gap is widely recognised, there is a lack of clear consensus in terms of definition, magnitude and potential solutions.

"Measures of pension wealth and retirement income can both be useful to understanding the magnitude of the gap, but the approach taken in this year's edition of the underpensioned report provides a more nuanced analysis of the causes of the gap.

"By their late 50s, women have average pension savings worth less than two-thirds of men's, with a substantial proportion of this difference stemming from inequalities in the labour market, including differing working patterns and the gender pay gap.

"While there are some pensions policy options that could be introduced to potentially mitigate the gender pension gap, it’s unlikely to significantly reduce without changes in labour market conditions and gendered divisions of domestic labour.”

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