Gender gaps in pension income could persist for decades, says the IFS

Gender gaps in retirement income are likely to persist for decades to come, the report says.

As the Institute for Financial Studies (IFS) points out, the gaps are due to differences in labor market patterns, particularly when people have children.

According to the researchers, the state pension income of men and women who have now reached the state pension age is the same.

But even for the youngest generation of working age, inequality in personal pension wealth persists. This means there will be persistent gender differences in average private pension earnings for decades to come, says the IFS.

The research, funded by the Nuffield Foundation, was launched on International Women’s Day on 8 March as part of a series of reports on life-cycle pension savings.

In the two years leading up to the arrival of their first child, expectant fathers and mothers on average make the same amount of contributions to their pensions, says the IFS.

But six years after the birth of the first child, fathers’ average contribution is twice that of mothers’.

Much of this gap is due to differences in employment levels, hours worked and hourly wages, which are currently being exposed, the IFS added.

The gap between male and female pension participation among private sector workers is due to the fact that a higher proportion of women earn less than £10,000 a year and therefore do not need to be automatically enrolled in their employer’s workplace pension savings, the report said. .

Laurence O’Brien, IFS research economist and author of the report, said: “The reforms have led to a narrowing of the gap between men’s and women’s state pension income for recent retirees.

“But there are still gaps in personal pension income. Women contribute less to their pensions each month than men, which is almost entirely due to differences in employment levels, hours worked and hourly wages.

“These differences have narrowed over time, ultimately reducing the gender gap in retirement incomes.

“However, labor market gaps are still widespread among the younger generation, and they are especially pronounced after having children.

“Because these generations will not retire for many decades, we can expect the gender gap in retirement income to persist for a long time to come. Policymakers dealing with this gap should see it as part of labor market issues, rather than a completely separate issue related to private pensions.”

Alex Beer, Head of Wealth at the Nuffield Foundation, said: “The UK pension system relies heavily on individual pension savings to ensure a standard of living in retirement.

“This means that differences in labor market participation and earnings, which lead to large and persistent inequalities in labor market outcomes between men and women, are subsequently reflected in the gender gap in pension income.

“Tackling the gender pension gap therefore requires a multifaceted approach that includes policies to address gender inequality in the labor market.”

The researchers used several data sources for the report, including figures from the Office for National Statistics (ONS), the Department for Work and Pensions (DWP) and other research.

Last week, the Government said it had backed proposals to lower the age at which people automatically qualify for workplace pensions from the current age of 22.

Conservative MP Jonathan Gullis’s Government-backed Private Members Bill could pave the way for the automatic registration age to be lowered to 18.

Phil Brown, director of policy at the People’s Partnership, a public pension provider, said: “More needs to be done to enable mothers to return to work or increase their hours if they wish.”

Women aged 60 to 65 have pension pots that are, on average, just over half (57%) of men’s pots, according to Aviva’s workplace pensions data, which analyzed a sample of just over five million workplace pension plans. age.

There is also a 21% gap between women’s and men’s pension contributions when looking at pension savers aged 35 to 39, says Aviva.

A DWP spokesman said: “Auto-enrolment has transformed pension savings and increased the number of women saving for retirement, with participation rates catching up with men.

“In 2021, 87% of women working in the private sector will be covered by a workplace pension, up from 40% in 2012.

“We recently confirmed our support for proposals to further expand automatic enrollment, which would enable millions of people to save more and start saving earlier. These changes will particularly benefit groups that have historically had a hard time saving for retirement, including women, young people and people with low incomes.”