What’s driving the gender pension gap?

The latest Scottish Widows Women and Retirement report shows that structural inequalities on pay, employment, caring responsibilities and divorce are all significant contributors towards the gender pension gap. Childcare in particular seems to be a bit of a catalyst for many of these factors, with the report highlighting that the onus is still on women to take time out from, or to cut down on, work to be a child’s primary caregiver. 

This often leads to a reduction in pay and, as a result, a cut in pension contributions. This is in comparison to men who currently do not see such a big impact to their working – and retirement saving – patterns once they have children. The gender pensions gap means that the average woman is currently on track to receive £12k of annual income in today’s money in retirement¹, compared to £19k for the average man.

The report from Scottish Widows also shows that men are on track for a retirement income that’s nearly 40% higher than that of a woman. Only 59% of women aged 22-65 are saving into a private pension, compared to 71% of men, while 62% of men are also expecting to be able to draw from other long-term savings sources in retirement, compared to just 50% of women. 

While there is of course nothing wrong with women having more time out of work to take care of children if it’s a family choice, it is the fact that societal structures often result in it being women’s responsibility, rather than men’s, that needs to be scrutinised. And we need to address these structures so that having a family does not disadvantage women compared to men when it comes to retirement. 

Single mothers are especially disadvantaged, and are much more likely to work part time and have a lower salary than the rest of the group surveyed for the report. As a result, they are likely to save even less into a pension, and to be on track for only the most basic lifestyle in retirement.

This year we’re breaking down the drivers of the gender pension gap and investigating how structural inequalities are impacting the UK’s female pension savers, and how we as an industry (and as a society) might address them. 

What impact does income and employment have on the gender pension gap? 

Employment

One of the key factors driving the gender pension gap is that employment still tends to look quite different for men and women. Women are more likely to work part time – or not at all. Of the women surveyed for the report, only 47% worked full time compared to 68% of men. 

This means that many women who are not in full time work might not qualify for automatic enrolment, which only kicks in if someone earns more than £10,000 per year. About 1.4 million women earn less than the threshold and so are not eligible for automatic enrolment, which means their employers do not have to automatically enrol them into a pension scheme.

This higher proportion of part time work and career breaks not only means that many women might not be accumulating a private pension, but the reduction in years worked could also disqualify them from receiving a state pension. Recipients of the state pension are required to have worked for 10 qualifying years to get any state pension, and for 35 qualifying years to get the full state pension.  

Income

The Scottish Widows Women and Retirement report shows that, on average, women earn substantially less than men and are paid 15% less per hour across all jobs in the UK. The average woman aged 22-65 earned £7k less than the average man (£23k compared to £30k), and about 40% of women who were surveyed earned less than £20k – compared to just 20% of men. However, the wage disparity between men and women means that, even if women saved the same proportion of their salary towards their pension as men do, they would still be saving less each year.

In fact, women tend to save less towards their pensions than men at every point in life - and the gap actually grows with age. This is because men’s average salaries tend to increase throughout their careers, while women’s average salaries peak when they are in their 40s. 

This is commonly driven by issues such as maternity leave, taking time out of their career or working part time to accommodate for family caring commitments, which traditionally still fall more onto women. However, the gender pension gap is over double the size of the gender wage gap, and so while the discrepancy in wages is one of the major drivers or the pensions gap, it’s certainly is not the sole cause. 

How does childcare impact the gender pension gap?

The report shows that women do more childcare than men, with 44% of mothers spending all five working days looking after their children (compared to just 16% of fathers). Only 16% of women spent no days per week looking after their children, compared to 35% of fathers. 

For many families the cost of full-time childcare is fairly prohibitive, which means that families often need to make a difficult decision about whether it’s worth a parent going to work or staying home to look after the children - a responsibility that tends to fall more upon mothers than fathers, with 37% of mothers leaving jobs to look after their children, compared to 18% of fathers. 

Even if women are still able to stay in work once they have a family, their pay – and, as a result, how much they can afford to save into a pension – is often affected. The report shows that 47% of mothers have taken pay cuts to work part-time so that they can juggle their childcare responsibilities - compared to just 15% of fathers. 

It’s also more usual for mothers to take maternity leave than for fathers to take paternity leave, possibly due to cultural reasons, with 71% of mothers taking more than three months of paid parental leave, compared to just over 6% of fathers. This can have a compounding effect, as if women take more time off for a first child they can fall behind in their career and earnings, and then they may be more likely to take time off for any further children. 

This can have a significant impact on their pension savings, as an average earning mother who took a career break for two and a half years at age 30 could have £8k less in their pension pot at the age of 68². Meanwhile, a mother who stopped working permanently at age 30 could lose £77k in their pension pot at retirement. 

Childcare can also impact or limit women’s long-term career opportunities and earning potential, with nearly half (48%) of women saying that having children slowed their career progression and made it harder to find new jobs. Given that women do substantially more childcare than men, the number of hours that they are able to work over their lifetime is more limited. This then reduces the amount they can save into their pension, and exacerbates the gender pension gap. 

However, some fathers may not actually be aware of the childcare discrepancy, with 50% of fathers saying that they share childcare equally with their partners. However, only 31% of mothers believe this to be true. 

Does divorce impact the gender pensions gap?

Men on track to have a Defined Contribution pension pot at retirement will have £234k on average, while divorced women are on track for just £80k. Given this, a couple who divorced late in their working lives and agreed to split pension pots equally would be roughly on track for pension pots of £157k each in today’s money. However, the majority of divorced women (60%) did not discuss pension assets during their divorce – costing them £77k in retirement income. 

The main reason that women did not discuss the pension assets was simply a lack of awareness to do so, with over a quarter (28%) of women thinking that they were not part of the proceedings. This is a worrying misunderstanding, as pension assets often represent a substantial proportion of a couple’s combined wealth.  

Can the gender pension gap be fixed?

While the gender pension gap is undoubtedly a huge problem, we are seeing some reasons to be optimistic that the gap is slowly getting smaller. This is due to several factors:

Automatic enrolment is increasing pension participation rates

The introduction of automatic enrolment has meant that the gender gap in participation rates for eligible employees has significantly decreased. Pension participation rates for those eligible for automatic enrolment have more than doubled for employees at private companies since it was introduced in 2012. These trends in participation rates will benefit younger generations more, as there is more time for their increased saving to accumulate into a larger pension pot.

While this is positive news, we do have to keep in mind that the difference in employment patterns between men and women means that the 1.4 million women who earn less than £10,000 will not be eligible for automatic enrolment. We’re also seeing some differences in how early men and women start paying into their pensions, with 19% of men paying into their pension by age 22, compared to just 14% of women.

Alarmingly, were seeing 9% of women in their 20s (aged 22-29 years old) opting out of their employer’s pension scheme. 29% said it was because they couldn’t afford to keep up regular pension contributions, and 14% said they would prefer to spend the money now. However, this opt out from automatic enrolment means that these women are missing out on compound interest gains and crucially, the ‘free money’ that comes with employer pension contributions, as opting out of an employer’s pension scheme is tantamount to taking a pay cut.

The hard truth is that by the time these women reach the end of their working lives, they may face a much harder retirement compared to those who have consistently contributed. This is particularly tough to take given they will have already faced an uphill struggle when trying to consistently contribute to their pension due to the likelihood of enforced career breaks. The good news, though, is that time is still on their side.

Parents are sharing childcare more equally

Today’s parents tend to split childcare more equally than previous generations. While women still carry the lion's share, mothers now spend less time caring for children than previous generations, with 44% of today’s mothers looking after their children for five working days a week, compared to the 83% of grandmothers who did when raising their children a generation ago.

Today’s mothers are also much less likely to have completely stopped working after having children (11% compared to 41% of grandmothers), while today’s fathers are more likely to take paternity leave than previous generation; 61% of fathers say they took at least some paid paternity leave, whilst only 5% of grandfathers say that they took any paid paternity leave when they had children.

The gender wage gap is falling 

The gender wage gap has also been falling steadily over time, from 27% in 1997 to 15% in 2022. This could be because during this period policies to address underlying inequalities, including those for maternity and paternity leave and childcare have been introduced more widely in workplaces. 

Pension assets are now on the table during divorce proceedings 

It’s also good news that pension assets are now discussed in nearly twice as many divorces compared to 10 years ago (32% in 2023 vs 16% in 2013). 

However, there’s still much more that we as an industry – and society – need to do to help close the pensions gender gap. 

What can we do to help to close the gender pension gap?

First and foremost, more needs to be done to support greater equality in childcare, and more generally to help parents access effective and affordable childcare. The Government has announced an expansion to childcare support in England (which currently only entitles three and four year olds to childcare). By September 2025, all eligible working parents of children under five in England will be entitled to 30 hours of childcare per week. This is a welcome step in the right direction and should help to ease the impact of childcare on mothers’ careers.

However, only 45% of parents in England are aware of the Government’s upcoming changes to childcare support, and similar expansions have not yet been announced in Scotland, Wales and Northern Ireland.

Having better childcare provision in place across the UK allows women to continue to work, which benefits their retirement income. Despite the high cost, professional childcare allows women to continue their career and pay progression, and so although continuing to work may not always make a great deal of difference to household income in the short term, it could make a significant difference to retirement income in the longer term. This is why it’s crucial not only that the schemes are rolled out, but that the UK Government ensure that eligible families are aware of their childcare entitlement. 

There are also societal expectations around childcare that need to be addressed. We need to normalise more flexible working arrangements for fathers, and foster a culture where paternity leave is routinely utilised. Childcare needs to be viewed as a family responsibility, rather than a woman’s one. 

This year’s report findings also reinforce the continuing problem of pension assets not being considered in divorce proceedings. While the number of divorce proceedings that discuss pensions has grown, assets were still not discussed in nearly 70% of divorce proceedings in 2023. Existing inequalities mean that failure to consider pension assets in a divorce can lead to highly unfair outcomes for women. To address this, we believe that consideration of pension assets should be legislated as a mandatory part of proceedings.

We believe there is merit in the Government exploring the idea of a 'family pension plan'. Government can reform rules to allow employees to choose their own pension, and providers could be allowed to offer a plan that a couple both contribute towards. This could be a powerful complement to wider reforms, ensuring a shared pension asset between couples that they can use in retirement or to split if they needed to in divorce.

We should also build on the overall success of automatic enrolment, and that it should be extended to more workers by lowering the threshold for eligibility, as well as reducing the age requirement from 22 to 18. This would ensure that more women on lower incomes or working part time would automatically save into a pension, and that they would have a longer period of saving. We also encourage the Government and businesses to consider allowing those earning under £10,000 to opt out of their own contributions, while still receiving employer contributions. 

Education on how to support women with the steps to engage in their pension early is a must, but when combined with policy changes it will play a crucial role in helping all women actively take control of their pensions and start thinking about future savings decisions. 

There’s still a long way to go, but it’s encouraging to see signs that the pensions gender gap is beginning to close – especially for younger women. By addressing the societal issues impacting women today – a large proportion of which are around childcare - we should see this gap continue to disappear more rapidly. 

This is crucial, because women who are active in the workplace can help contribute to a thriving economy now while also building a better retirement provision for the future, enabling them to be more financially resilient in retirement. So closing the gender pension gap isn’t just about creating the best outcomes for individuals – it benefits society as a whole.  

This article was originally published on 13 December 2023.