What is the gender pension gap?

Lifelong inequalities and women’s pensions

Retirement is often seen as a part of women’s lives that is far off in future, especially when the State Pension age (SPA) is projected to keep rising beyond 68, with these changes rumoured to be accelerated by as early as 2035. This is despite Scottish data showing that life expectancy is falling alongside similar figures for the UK, which show a decrease in life expectancy, in recent years. Healthy life expectancy figures have also seen a decline in Scotland, which impacts people’s ability to remain in the labour market. As women, on average, live longer than men, it’s especially important to consider the circumstances that will constrain women’s ability to plan for, and enjoy, their years in retirement.

However, the gender pension gap is a systemic issue. The gender pension gap (here given in terms of savings) means that women are currently retiring with £123,000 less than men. Further, a woman who is currently aged 25 is set to retire with £100,000 less than a man. The gender pension gap is also one of the main causes of female pensioner poverty, with single female pensioners, and racialised minority women pensioners at much higher risk than pensioners in couples and pensioners who are white.

Unlike the gender pay gap, there is no set definition or official measure of the gender pension gap in public and policy discussions. Overall, it’s generally understood to mean the different outcomes in retirement between men and women. The main difference is that, in some cases, the gap is calculated by looking at the difference in income between men and women in retirement. Other measures may look at the difference in wealth between men and women in retirement instead.

The drivers of the gender pay gap overlap with the drivers of the gender pension gap. There remain however, enduring structural barriers within the pension system itself that can inadvertently affect women’s pension outcomes. We know that what happens during a woman’s career is directly linked to her future pension pot. Responsibility for unpaid care shapes women’s working lives, impacting their ability to earn and to save, while enabling men to maintain better paid, uninterrupted careers.

Gender inequality in the pension system

The pension system itself is highly gendered, reflecting the traditional male working pattern it was built on post-war. Both state and private pensions were designed to reflect the ‘male breadwinner model’ which benefits men and places women at a significant disadvantage. For example, gaps in women’s employment due to caring responsibilities mean they will often not earn enough to make National Insurance contributions and therefore not build up their entitlement to a state pension at the same rate as men, who are more likely to work full-time.

Even now reforms to the state pension system have failed to consider gender, for example auto-enrolment excludes the lowest paid part-time workers, who are more likely to be women.

Continuing crises and the impact on women

The lasting impact of over a decade of austerity means that women are far more likely to have suffered significant hardship, with less capacity to absorb the impact of recurrent crises and increases in the cost of living.

Covid-19 exposed many of the entrenched inequalities that have seen women generally placed at an economic disadvantage. Women’s labour market participation was severely affected, with women more likely to be:

• in the sectors that were shut down, such as retail and hospitality;
• furloughed; and
• made redundant.

During this time, women were also more likely to be bearing the brunt of increased household labour and care, including supervising home-schooling.

The cost of living crisis has exacerbated poverty and financial precarity. More women report that they have cut back on household essentials, including basic clothing, transport, often skipping meals to help provide for their families, and with a greater reliance on foodbanks.

Evidence from Scottish Widows reveals that the crisis is having a direct impact on retirement savings, with 16% of women cutting back on their retirement savings to cope with rising living costs . The figures were similar for men, however women were already less likely to have been saving for retirement due to the adverse gendered consequences of past crises.

Unequal distribution of unpaid care

As highlighted above, there remains an unequal gender distribution of care, which typically falls on women’s shoulders. This is a key contributor to women’s pension inequality.

Women are more likely to have unpaid caring responsibilities for children and other relatives with caring needs, which drives the high levels of women working part-time. Women are overrepresented in low paid, part-time work and, simply put, lower wages mean lower pension contributions.

Caring responsibilities also often mean that women withdraw from the labour market completely, and these interruptions to employment have a huge impact on their pension contributions. Women therefore have less time to build up a good pension for retirement.

A necessary step in addressing the gender pension gap is better support for childcare. The high cost and lack of availability of childcare that meets working women’s needs restricts women’s choices in employment and limits their ability to save for retirement.

Divorce and separation

The need for women to accumulate their own independent pension is vital for women’s safety and economic wellbeing. In opposite-sex relationships, women are more likely than their male partner to take time off to care for children. This results in gaps in their employment and sees them funnelled into low-paid work, which reduces their ability to save for retirement. Meanwhile, men face less interruption in their careers, with better opportunities to progress and the ability to save more.

Research from Now: Pensions, shows that when divorce happens within opposite-sex relationships, and women reach retirement age, they leave work with only 12% of the pension wealth of men. This represents only £26,100 compared to a staggering £205,800 for men. Pensions are often not considered during the separation process – just 12% of divorces include a division in pension. Women are therefore effectively penalised for their caring roles.

Demographic factors

On average, women live 3.7 years longer than men, but are also more likely to need care later in life. This means they need more savings in their retirement, and to be able to live off their retirement savings for longer. Scottish Widows estimates that, on average, women would need £85,000 more in their retirement savings to ensure financial stability and a quality of life comparable to their male counterparts.

This also means the rise in the SPA does not produce gender neutral outcomes. Women are more likely to exit the labour market early, before reaching retirement age, often due to caring responsibilities or for health reasons. The increase in SPA therefore means that women will be left with an even larger gap in income to fill. Research focusing on the increase in the SPA from 60 to 66, for women born after March 1950, shows a detrimental impact of the reform on women from lower socioeconomic groups, with widening health disparities, an increase in self-reported clinical depression and a negative impact on their physical health. The WASPI (Women Against State Pension Inequality) Campaign are among groups such as BackTo60 and We Paid In You Pay Out, who have been vocal in highlighting the injustice that significant changes to the SPA were made without providing sufficient notice to those who would be most affected: women. Rather than opposing the equalisation itself, a shared concern of these groups is that the government had accelerated the timetable but failed to notify the 1950s-born women, who would be severely impacted by these changes.

Women’s divergent experiences of pension inequality

It’s also vital to recognise that women’s experiences vary, and different groups of women will face different and multiple barriers which will contribute to the gender pension gap.

Those who are most likely to be from under-pensioned groups include racially minoritised women, disabled women, carers and single mothers. In addition, COVID-19 has made it more likely that carers will experience potentially damaging effects on their pension contributions as they have found it more challenging to maintain employment.

Furthermore, women from some racially minoritised groups are more likely to cite they had no pension as a source of income in their retirement, but using cash savings instead, placing them at greater financial risk due to the high levels of inflation. Single mothers are one of the groups hardest hit by the increase in the cost-of-living and are typically the least prepared for retirement, while also being unable to rely on other forms of retirement income such as investments. This places them at considerable vulnerability now and in retirement.

Change is needed now.

Wide-ranging reform to the pension system is necessary if it is to work for women. Likewise, there are many steps government and employers must take to address both the gender pension gap and gender pay gap.

We need a childcare system that ensures provision is flexible, accessible and affordable to tackle barriers to good quality work for women, increasing their ability to save for retirement. Pension rights must be a compulsory part of divorce proceedings to ensure women’s economic wellbeing and safety. Finally, the pensions system itself need radical change to reflect the realities of working life for women.

Urgent action is needed from government and employers to mitigate the impact of pension poverty experienced by older women now and, to challenge the current drivers of the gender pension gap for future generations of women.