24 Jun 2022
Urgent action needs to be taken to address the UK’s gender pension gap, as new research of more than 4.5 million savers in the UK shows that it has barely changed since 2020, and in some age groups and sectors has deteriorated further.
Women are left with smaller pension pots at every stage of their career, with the situation worsening significantly as they approach retirement. The research, which analyses data from more than 4.5 million members across L&G’s defined contribution (DC) pension scheme clients, shows that women are always at a financial disadvantage, even at the start of their careers.
The initial gap of 16% widens as women reach their forties, accelerating to 31% as the impact of career breaks and unequal caring responsibilities begin to take effect. By the time people can take their tax-free cash at 55, the gap is over 50% and deteriorates further to 55% by retirement.
This new data for 2021 shows the gender pensions gap has decreased marginally across age ranges, but by only one percentage point for the start and end of women’s careers. On the current trajectory, women will still be retiring with vastly smaller pension pot sizes than men for many decades to come.
L&G also analysed the size of the pension pots of more than 50,000 Britons who retired in 2021 and the picture remains just as stark as those yet to retire. On average, the size of a man’s pension pot at the point of retirement was £26,000 compared with just £12,000 for a woman. Whilst retirees are likely to have more than one pension pot from different employers, the gap is expected to be broadly similar for all pots.
There are many reasons identified for the gap, including the fact that women are still paid less and are less likely to be in senior leadership positions, resulting in lower pay and lower pension contributions. They are more likely to take career breaks for childcare or as an unpaid carer and are more likely to work part time or reduced hours, as well as self-identifying as having lower fiscal confidence.
The high cost of childcare in the UK* is a barrier to women returning to work after maternity leave, or returning full time, and the means test on benefits can be a driver for capping hours, particularly in certain industries. In addition, 1 in 10 women leave their jobs due to the symptoms of Menopause according to The Menopause Charity, meaning women are leaving the workforce at the exact time when their earning potential is likely at its highest.
Katharine Photiou, Commercial Director of Workplace Savings at Legal & General: "There are many factors that have led us to this point but very few solutions offered. It’s time women stop being penalised for things outside of their control, like the high cost of childcare, or being paid less than their male counterparts.
We know that women feel significantly less confident, and are more likely to struggle on knowing where to start, when it comes to making financial decisions. Industry and government must therefore work together to ensure education and engagement around savings and investments increase. For example, too few know about the flexibility that couples have in being able to contribute to their partners’ pension while they are on parental leave. This is something that can significantly reduce a women’s pension shortfall.”
Like the gender pay gap, the pensions gap is a structural and societal problem that will take time to solve. L&G recognises that urgent action needs to be taken now and is calling for all companies and DC pension providers to publicly disclose their own gender pensions gap, so that all stakeholders can understand the issue and work to fix it.
To do so, L&G has reviewed its own gender pension gap and will monitor it annually to ensure it is making progress, by reviewing internal support, processes and policies to make changes such as better support for menopause and a review of paternity and shared parental leave. Current analysis shows that there is a 60% gender pension gap for L&G retirees at the point of retirement with an average gap of 32% for current savers.
In addition to disclosing its own gender pension gap, L&G is committed to raising the profile of the gender pension gap across the companies it invests in and will continue collating data in order to include it in its stewardship activities going forward, as well as working with regulators, trade bodies and other providers on longer term solutions.
Going further, L&G has created a working group with 14 of its largest clients with 535,000 members and assets of over £7 billion, to help them tackle inequality in their own pension schemes by the end of 2022 and plans to expand this group further in 2023. In addition to promoting greater collaboration between schemes and providers, L&G has also committed to equipping all defined contribution clients and their underlying 4.5 million members with the tools they need to help address the gender pensions gap.
In terms of regulatory reform, L&G submitted a number of recommendations to the Work & Pensions Select Committee in January 2022 as part of the Pension Freedoms Consultation, including:
Stuart Murphy, Co-Head of Defined Contribution at Legal & General: "These figures demonstrate the glacial pace of change on the gender pension gap, as well as the need for greater cross-industry collaboration between government, employers, pension fund providers and members to address the scale of the challenge.
In our view encouraging full disclosure to highlight the scale of the issue is an important starting point. We are calling for full disclosure from companies and DC pensions providers to publicly share their gender pension gap so that we can better identify and fix this problem.
We are also making a call for regulators and law makers to look at reform; including dropping the minimum age of auto-enrolment, abolishing the auto-enrolment minimum salary threshold and provide further support to help families with childcare costs.”
Legal & General Investment Management
LGIM is one of Europe’s largest asset managers and a major global investor, with total assets under management of £1.16 trillion1 ($1.47tn, €1.35tn, CHF 1.31tn). We work with a wide range of global clients, including pension schemes, sovereign wealth funds, fund distributors and retail investors.
For more than 50 years, we have built our business through understanding what matters most to our clients and transforming this insight into valuable, accessible investment products and solutions. We provide investment expertise across the full spectrum of asset classes including fixed income, equities, commercial property, and cash. Our capabilities range from index-tracking and active strategies to liquidity management and liability-based risk management solutions.
1 Data as at 30 June 2023. Data combines assets under management by LGIM in the UK, LGIMA in the US and LGIM Asia in Hong Kong.
Assets under management include securities and derivatives positions
*as at HY 2023