By Tom Murray, Head of Product Strategy for LifePlus Solutions at Majesco.
The gender pay gap itself is one of the creators of this problem. As men earn more than women, they can save more. This also means that matching funds from employers are higher, as are the governments contributions. Over time, these contributions compound to make men’s pension pots significantly bigger than women’s. While this problem that would dissipate as the pay gap narrows, it doesn’t solve the whole issue. The pension gap situation is much worse as it is almost double the actual pay gap.
There are other reasons for this disparity in pension saving that need to be addressed. One of the most significant is that women are far more likely to have to reduce their working hours or cease working temporarily in order to provide both child-care and elder-care during their working life. The resulting effect on their pay is also reflected in the effect on their pension savings. And for those who move to part-time work due to caring obligations, many fall under the £10,000 threshold for auto enrolment and therefore are no longer in any scheme. This means that they also forgo the matching employer and government contributions.
When they resume, there is also a likelihood that, having been put out of the scheme for a while, they will have lost the long-term savings habit and will opt-out of being re-entered into the scheme.
When auto enrolment was originally introduced, this threshold was put in place as it was felt that the contribution would lead to too big a reduction for those on lower wages and that the cost of administration would be too great for the amount saved. It was pointed out to the government that there were a significant number of people in the UK with multiple jobs and that they might not qualify for auto enrolment under any for them even though their cumulative earnings would comfortably exceed the threshold. The truth was acknowledged by government but it was felt to be too difficult an issue to tackle at the time.
As the UK’s population ages, the issue of caring for the elderly is on the increase and will disproportionately effect women. In line with this, the rise of the gig economy will see more part-time workers or workers with multiple small jobs. Current trends indicate that more women will take this route to find employment that fits in with their other obligations.
There is an urgent need to address this gender gap in pensions. If women could sustain the long-term savings habit that auto enrolment has inculcated, over time the gap could be narrowed. Combined with work on equalising pay, this could go a long way to ensuring a better retirement for many women.
One of the easiest first steps would be to remove the £10,000 earnings threshold for auto enrolment. This would enable those who have had to reduce their working time and income to keep contributing to pension schemes. It would also ensure that they would not miss out on the matching employer and government contributions.
The increasing digitisations of the pension’s industry will make this easier to achieve and will help women maintain their pension plan as their ability to work and earn fluctuates throughout their working life. Not only does the digitisation of the pensions industry make it easier to maintain their savings, but by reducing costs it also allows the pension companies to facilitate larger amounts of smaller contributions and regular changes of employer without the massive overhead that occurs with more traditional administration.
Cloud-based digital processing of pensions also facilitates the provision of portals that enable customer dashboards to show people how their savings are growing. By allowing the individual to check their details they can keep track of the payments and remain engaged with their pensions, a vital step towards keeping their savings growing.
There are other areas that need to be looked at if we are to achieve equality in pensions, including what to do about those who interrupt their career completely to raise a family, but these are the easy steps that can start the process of narrowing the gap. There is no excuse for us not to start on this path immediately.
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