Without a coherent approach to policy, serious issues will continue
There is an increasing focus on gender equality, and pensions policy is no different. While we have long known that, on average, women’s pension pots are smaller than those belonging to men, the sheer size of the gap is now making headlines.
According to the Chartered Insurance Institute, a typical woman aged between 65 and 69 has overall pensions wealth of £35,700, just a fifth of that of a man the same age.
The average female pensioner is £7,000 a year worse off than their male equivalent, making the gender pensions gap a frighteningly huge 39.5 per cent, according to Prospect – more than double the size of the gender pay gap.
The factors which drive this chasm are complex. Our latest research with more than 2,000 mothers found nearly half reduced their hours after having a child, more than a third left work altogether, and more than one in five returned to the workplace in a downgraded role. In a contributory workplace pension system, the result is lower or halted contributions and smaller pots.
Many women wanted to work fewer hours to spend more time with their children, with four in 10 pointing to the heavy cost of childcare as another disincentive to going back to work.
On average, childcare in the UK is more expensive than anywhere else in Europe.
A woman in London with a child under two, who earns the median full-time income, will pay 60 per cent of her after-tax earnings towards childcare, commuting and associated expenses, reducing take-home pay to £9,700 per year or a little over £800 per calendar month.
And these figures do not improve much once you move away from the capital, with mothers paying 44 per cent of after-tax income towards childcare costs on average, leaving just £13,000 a year to live on.
Easy answers are hard to come by, with pensions policy alone unable to solve this issue. Better provision of affordable childcare across the UK is vital to ensure that, if mothers do want to return to work, it makes financial sense for them to do this.
Introducing a single, specific earmarked grant to councils to cover the cost of the existing policy which guarantees 30 hours per week of care for all three- and four-year-olds would help.
More should also be done to attract childcare providers to open premises on high streets, especially those blighted by high levels of unoccupied retail units.
While not a silver bullet, pensions policy can help too. Cutting the auto-enrolment earnings trigger to the primary National Insurance threshold of £8,628 would bring in half a million new pension savers, three quarters of whom would be women.
A timetable for the removal of the lower qualifying earnings band so that all those automatically enrolled contribute from the first pound of earnings is key and would remove the entitled worker category.
This means all those earning below the earnings trigger who opt into auto-enrolment would be entitled to an employer contribution. The government has committed to this reform but has not yet introduced it.
Likewise, fixing the net-pay tax quirk which has left millions of lower earners not receiving the tax relief they are due would significantly benefit women.
Without a clear and coherent approach across labour market and pensions policy, this very real and present problem will continue, even if changes to the second state pension made in the 2000s, and taken on into the flat-rate state pension, increase gender fairness.
We must continue to talk about how we can close the gender pensions gap in the months and years to come, as it is not something that will go away without serious reform.
Gregg McClymont is director of policy and external affairs at B&CE, provider of The People’s Pension