Anna Brain: What can the gender pensions gap reveal about developing retirement saving frameworks of the future?

16 Sep 2019

Anna Brain is an associate policy researcher at the Pensions Policy Institute (PPI)

Recent research by the Pensions Policy Institute found that, on average, women in their late 50s in Great Britain have just half the private pension wealth of men of the same age from defined benefit and defined contribution savings.

By age 65, this gap equates to more than £100,000 (ONS, 2014-16) and by 2020, women are expected to enter retirement with state and private pensions yielding an average income of £11,760 a year, 28% below that of men on £16,330. The gender pensions gap puts women at higher risk of poverty and inadequate living standards than men in later life. However, as longevity increases and private pension savings may need to last longer than ever before, the drivers of disparity in retirement income are not limited to women. They are risks that could affect the whole working age population.

The accumulation of savings during working life is significantly impacted by employment patterns, income, scheme types and participation rates. Women are more likely to have irregular working patterns due to family care provision and are consequently more likely to experience lower earnings, state pension entitlements and career progression. The result is discontinuous pension contributions and lower retirement income, although the gender gap is partly reduced by proportionately higher rates of employer pension scheme participation among women, and the greater likelihood that they have a source of secure defined benefit income (thanks to higher rates of public sector employment). Although employment rates are rising among women and older age groups and auto-enrolment means more people are saving into private pensions, the need for periods of reduced economic activity to provide family care, manage health conditions or retrain is likely to persist. State pension age increases are leading to more years of employment and pension contributions, but trends towards multi-stage lives with varied careers and career breaks suggest saving will not always be linear and more flexible access to pensions may be needed before and after retirement.

Research also found that policy, saving and investment strategies are largely designed around linear progression of earnings and pension contributions. They rely on growth in the early years of accumulation, safer investments in the later years and a degree of certainty on when savings will be withdrawn. This presents complex challenges to policymakers, industry and guidance bodies seeking to meet the needs of people with varied income and working patterns whilst also trying to improve sustainability and lower the cost of pension systems in response to rising longevity.

Understanding how the gender pension gap has materialised is an important first step in identifying opportunities to re-design retirement models and help more people, particularly women, save in a flexible and affordable way. By making engagement, intervention and investment objectives relevant to circumstances, and being clear about risks associated with choices in working life and retirement, it may be possible to reduce pension disparity and improve the adequacy, sustainability and flexibility of savings for more retirees in the future.

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