The pension pay gap: what needs to change to give women parity with men?

The report reveals that women earn on average 25% less than men, with a yearly income of £24,800 versus £33,000 for men. This gap starts from an early age and widens over time (in part due to women taking time out to have and look after children) reaching 12.3% by the age of 40 years old. And, by the time women retire their pension pot averages £69,000, a third of that enjoyed by men who retire on average with £205,000. This puts women at a higher risk of poverty and financial insecurity in later life. 

The report also highlights that nearly one in five women are excluded from auto-enrolment, the government scheme that automatically enrols eligible workers into a workplace pension scheme. This is twice the rate for men and means that many women are missing out on the benefits of employer contributions and tax relief.

The report calls on the government to take urgent action to address the pensions gender pay gap and makes five recommendations to address this:

1. Removing the £10,000 auto-enrolment trigger, which excludes many part-time and low-paid workers, who are predominantly women from being automatically enrolled into a workplace pension scheme.
2. Removing the lower earnings limit, which means that workers who earn less than £6,240 a year do not receive any employer contributions to their pension, even if they are enrolled. This affects 1.2 million women.
3. Introducing a pension top-up for family carers, who often sacrifice their earnings and pension contributions to look after children or elderly relatives. 
4. Sharing orders on divorce should be the default option in respect of pensions, unless the couple agrees otherwise.
5. Ensuring affordable childcare for women returning to work, as the high costs involved often discourages women from working or limits their working hours, reducing their pension savings. 

Our view

Women have long grappled with a raw deal when it comes to state pensions. The controversial changes in the state pension age, affecting the WASPIES (Women Against State Pension Inequality) disrupted their retirement plans and left them feeling short changed. 

The report highlights proposed legislation to change the lower earnings level. But the real impact will only be felt when the £10,000 earnings limit is removed. There is no sign that the government will remove or change it. Earlier this month, the Department for Work and Pensions published its review of the automatic enrolment earnings trigger and qualifying earnings band for 2024/25. This concluded that the existing threshold of £10,000 for the earnings trigger remains the “correct level” and will be maintained for 2024 to 2025. It believes that this represents a real terms decrease in the value of the trigger because of wage increases. 

When it comes to divorce, married couples often overlook an essential asset: pensions. While the family house may be a focal point, pensions play a crucial role in long-term financial stability. Ignoring pensions during asset sharing arrangements can lead to women having lower pensions at retirement, despite other gains.

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"This report underscores the need for comprehensive reforms, addressing not only gender disparities but also the challenges faced by ethnic minorities. As we navigate the complexities of retirement planning, let’s advocate for meaningful change and ensure a fairer future for all." - Penny Cogher, specialist pensions lawyer at Irwin Mitchell