Addressing the gender pension gap

The gender pension gap has loomed over the financial services sector for decades now. However, the widening of the gap appears to have accelerated at a worrying rate in recent years.

Figures suggest a massive 40.3% gap in pension savings between men and women. This means that women are receiving an average of £7,500 less year in retirement income than their male counterparts.

This is particularly worrying within the context of skyrocketing energy bills and economic uncertainty. Indeed, if women are receiving substantially less than men throughout retirement, they are less likely to be able to sustain a comfortable lifestyle and could find themselves falling into pension poverty.

Of course, this issue must be addressed urgently. But in order to begin closing the pension gender gap, it is important to understand the leading causal factors.

What is driving the gap?

The pension gender gap is a complex issue. As such, several factors contribute to it.

It is impossible to consider the gender pension gap without addressing the gender pay gap. Of course, unequal gender pay plays a part in this – all businesses across the UK must commit to addressing this issue, from allowing women access to equal opportunities for career development and promotions to ensuring they are paid the same as their male counterparts within the same role.

However, the gender pay gap is also driven by the fact that women are seven times more likely than men to take career breaks. And this causes an imbalance in the level of occupational pension saving between men and women. As such, women are more likely to lose track of pensions throughout their career break and save less into their pot throughout their working life.

It is also impossible to ignore the issues within the UK’s state pension system. The Department of Work and Pensions (DWP) state pension underpayment scandal highlighted this, as women were disproportionately affected. The administrative and systematic errors meant that individuals with deceased partners did not receive the state pension they were entitled to. And as women’s life expectancy is longer than men’s, it was largely women who did not receive their entitled pension payments.

How can the issue be addressed?

Given the complexity of the issue, there will clearly be no quick fix to closing the gender pension gap. However, action should be taken immediately to prevent the gap from widening further.

As mentioned earlier, it is vital that businesses review their internal policies and develop a strategy to close their organisational gender pay gap. Equal pay will be one of the foundational changes needed to reduce pension gender disparity. Further, more must be done to help female employees engage with their workplace pension, assess the state of their savings and understand the potential benefits of increasing their contributions.

That said, it is also important for the government to understand the systematic changes needed within the UK’s pension sector to eradicate gender bias; for example, simplifying the state pension system so widows can easily claim the state pension they are entitled to should their partner die.

The government must also ensure it remains on track with the pension dashboard. Such a tool will transform women’s ability to track down lost pensions accumulated throughout their career and help them to better gauge their financial situation.

That said, such systematic change will take time to implement. As such, it may be beneficial for women to seek independent financial advice, to understand the current state of the pension savings, and how they can ensure they will have enough to live comfortably when they retire. An adviser will review the entirety of their financial situation, as well as their future goals, and develop an appropriate savings strategy. In doing so, women will be able to maintain regular retirement savings, thereby strengthening their long-term financial position.

The gender pension gap is an incredibly complex issue. It will take time for meaningful change to be implemented and for the gap to begin to close. As such, whilst women wait for the government and businesses to play their part, women should consider seeking independent financial advice to ensure they have a strategy in place to secure the strongest retirement outcome possible.