By Jon Dean, Head of Retirement Strategy, Altus
Now there is an emerging awareness that the problem extends to pensions too. In 2017/18, females received about 40% less pension income than males, equivalent to an average £7,000 a year, according to the union Prospect. The gender pay gap in that year was 17.9%.
The pension gap is caused in part by the differential in men’s and women’s hourly pay, as well as hours worked. The £10,000 per employment auto-enrolment threshold means low-earners miss out on pension membership, disproportionately impacting part-timers and those in multiple low- or zero-hours contracts. This is compounded through missing years in work to raise children (still largely a role the mother undertakes), leading to missed NICs and a reduced state pension.
Pay and benefits differentials can only be addressed by government and social policy (such as making childcare affordable or increasing the scope of auto-enrolment) and corporate governance (holding boards to account in pay inequality). Meanwhile, Aegon’s recent research into this subject, as revealed to Actuarial Post (What is fuelling the pensions gender gap), suggests there may be another contributor to poorer retirement outcomes for women. Could the gap between men’s and women’s awareness of their pension pots be making things worse?
Intrigued by this, I took a vox-pop survey around the Altus offices, which revealed some interesting findings on workplace pension engagement:
• Some younger colleagues are on top of their pension savings and regularly log in for an update; others feel retirement is so far away that checking their pot is pointless.
• Some colleagues know they have multiple pensions but not where all of them are; many are aware the government is due to launch a pension dashboard and think this will help because they don’t know where to start.
• Most read their pension statement summary but can’t decipher what this means to them.
• Recent joiners say it’s demoralising checking their pot, when they see how little they’ve saved so far.
• Different statement formats and types of benefits cause confusion. Tools for retirement planning are available but not always helpful.
• Often cited is that checking whether their pension is on track is something that is too easy to put off.
• Finally, colleagues who do engage with their pensions, enthuse about the importance of having support from their employer in helping them to understand their finances. A culture where the pension is a core part of your pay package is a long way from one where it is simply compliant with the law.
Altus works in the financial world, therefore my survey was not representative of the wider public. Nonetheless, at no point did my colleagues’ answers give cause to suggest that gender differences explain low engagement. Other factors, such as years remaining to retirement, previous experience of workplace pensions and attitude to money generally, appear more important. Encouragingly, almost everyone I spoke to was glad to be saving in a pension, and genuinely interested in knowing more.
Closing the gap
Solving the gender pensions gap could be tackled in a number of ways, from reform of automatic enrolment, to use of technology, through to better communication strategies.
Prospect argues for reform to the auto-enrolment system, to remove the earnings trigger and start contributions from pound one and age 18. This would be the simplest approach and would normalise pension savings for all workers, and particularly benefit women. But there’s a risk we’d be asking many people to save who can least afford to. We could be pushing people into hardship and debt today for only a marginal improvement over state benefits. This could be mitigated by, for example, extending the opt-out period.
Keeping in place the minimum earnings trigger, we could still use clever technology to increase auto-enrolment coverage for those in multiple jobs. In Australia, contributions are funnelled through one of many registered gateways to a worker’s chosen “Super” (pension scheme). Such a gateway, adapted for the UK, could collect earnings records from each job and assess whether the threshold has been met. However, this solution would have limited impact on low earners’ pension savings. It would also be a major and costly undertaking to replace the current, largely payroll-based, solutions used today, and as with the dashboard, there is the question of who would run the gateways.
A third way would be to improve the way we communicate the benefits of pension savings; easy, in theory, but a lot harder in practice. Steps being taken now include simplified 2-page benefit statements, statements in video format, earlier wake-up packs and better planning and “what-if?” tools that some providers make available. But recent regulations on charges disclosure and enhanced risk warnings may hinder as much as help.
My vox-pop findings emphasise the need to make sure that employers’ spend on workplace pensions is backed up by a simple communication strategy and a willingness to help with financial education. The good news is, writing better communications doesn’t need legislation to be passed first. It will benefit everyone, not just those who are not saving enough today, and some providers are already proving it can be done well. Moreover, retailers have demonstrated that it’s possible to use the power of data to target messages at increasingly focused customer segments, a technique which pension firms could easily borrow to encourage women (and anyone who’s not saving enough) to make better provision for their retirements.
|
