A Pensions Policy Institute (PPI) report in partnership with NOW: Pensions estimates that a girl would need to start saving towards a pension at three to close the vast gender pensions gap between men and women.

The PPI’s report, released earlier this month, revealed how by retirement age (67), women had average pension savings of £69,000 compared to £205,000 for men.

Publication of childbearing statistics from the Office for National Statistics (ONS), which coincided with the report, showed the most common age for women born in 1977 to give birth was 31 years, 10 years older than the average age among the previous generation.

Of women born in 1993, the ONS found that 44% had one or more children before 30 years of age, compared with 58% of the previous generation (assumed to be born in 1965, for the ONS’s purposes).

The motherhood penalty

Having their first children in their 30s and 40s means women are more likely to switch to working part time after taking off maternity leave. While the gender pay gap is closing, these ‘career gaps’ have huge implications for women’s pensions.

Alice Guy, head of pensions and savings at Interactive Investor, said the gender pensions gap was smallest for those aged 35-39, but then increased to 47% for those aged 45-49. It then decreases to 35% by the time women reach age 55.

Guy said II’s research found women pay £57 less into their pension than men each month.

“Women are more likely to work part time in their 30s and 40s and that makes it much harder to build pension wealth, and steep childcare fees mean there’s often little money spare for extra pension payments,” she added.

Closing the gap

There are three main ‘tools’ that research has indicated could help the pensions industry address this inequality.

Tool one: Removing the auto-enrolment earnings limit

A report by the Pensions and Lifetime Savings Association (PLSA) and the Pensions Policy Institute last autumn found removing the £10,000 auto-enrolment earnings trigger could improve retirement outcomes for nearly three million people, many of them women.

Lauren Wilkinson, senior policy researcher at the PPI, said women made up 79% of workers who earn less than the auto-enrolment earnings threshold, meaning approximately two million women in employment were not automatically enrolled into a workplace pension.

Removing this threshold and lowering the minimum age to 18 would mean an additional 885,000 young women in employment would become eligible for a workplace pension, the research showed.

Tool two: Education and incentives

Jeremy Hughes, senior pensions secretary at the Local Government Association and deputy board secretary of the Local Government Pension Scheme Advisory Board, said work needed to continue on educating savers on the implications of a career break on their pension.

Having the right information might help focus members on the need to top up their pension, alongside any employer incentives or initiatives, he said.

Hughes said the issue of pension sharing remained a work in progress, with a worrying number of women not being able to benefit from a pension built up by a spouse while they were married.

Research by Legal & General highlighted that just 12% of divorcing couples consider pensions when addressing shared financial assets during a separation.

Meanwhile, Richard Smith, an independent dashboards expert, said pensions dashboards could be used as an educational tool.

“Reports have shown that many women want to start learning about and getting on top of this issue, and that Generation X women [those born between 1965 and 1980] are the group of consumers who are keenest to use pensions dashboards.”

Tool three: Gender-gap proofing pension scheme structures

When making changes to schemes there needs to be an ability to mitigate and minimise any impact it may have on inequality.

For example. there has been a move among larger defined benefit schemes to switch to a pension based on career average earnings rather than final salary. This may help address inequalities as final salary structures tend to benefit those with longer careers.

Other scheme design changes that trustee boards are considering include more incentives to buy back years of service, or buying additional pension years.

Having a diverse board on a pension could also go some way to helping schemes make decisions around equality and inclusion.

Policy changes still needed

Joanne Segars OBE, chair of trustees at NOW: Pensions said: “Our report is a timely reminder of the work that still needs to be done. We believe it can and it must.”

Interactive Investor’s Guy pointed out that, while there are some pension policy options that could be introduced to potentially mitigate the gender pension gap, wider changes were needed.

She added: “It’s unlikely to significantly reduce without changes in labour market conditions and gendered divisions of domestic labour.”