?The United Kingdom is taking steps to address a gender pension gap that results in far more older women living in poverty than older men—a problem that exists in nearly every retirement income system around the world.
The gap varies widely: Japan has a nearly 50 percent gap while Estonia’s is less than 5 percent, according to a World Economic Forum report. On average, women receive 27 percent less in annual pension payments than men. In the U.K., the gap can represent as much as £6,000—approximately $6,935, a recent Mercer report noted.
Drivers of the Gender Pension Gap
Several employment-related factors combine to drive the gender pension gap, said Yvonne Sonsino, Mercer partner in London and global co-lead of Next Stage, an initiative to help employers capture the value of age and experience. Significant factors driving the gap include career gaps, caused by breaks in employment for childbearing or caregiving to an infirm relative; generally lower salaries for women than those earned by their male counterparts; and women’s generally longer life spans, resulting in their need for more money to fund their later years.
Complicating the issue further is the fact that certain design features of pensions themselves contribute to the gender pension gap, Sonsino said. These features include eligibility requirements for participation in the U.K.’s defined contribution workplace pension scheme, Nest, such as a minimum salary of £10,000—approximately $11,558; withholding of contributions during maternity leave; minimum accumulation requirements; and gender-specific mortality tables for annuities.
“One of the key drivers of the gender pension gap is the fact that women are much more likely than men to be in part-time roles and to be in lower-paid roles in general,” noted Amy McSweeney, work evidence officer at the Centre for Ageing Better in London. “In the later periods of their career, women are three times more likely than men to be employed on a part-time basis, with 28 percent of 50- to 64-year-old women working part-time compared with just 9 percent of men in the same age group.”
Even women in full-time employment are at a disadvantage compared with their male counterparts, McSweeney added, noting that in 2000 the median weekly wage of men in their fifties was twice that of women. “While the gap has narrowed since then, things are still not equal today.”
McSweeney recommended that all employers offer flexible work opportunities from the first day of employment. This is the “No. 1 workplace practice” that would reduce barriers to maintaining work/life balance, support people in working longer, and benefit employers by retaining the knowledge and skills of their most experienced workers, she said. Flexible work opportunities would help close the gap between men and women’s employment rates, allow more people to move to full-time work if desired, and reduce the pay gap, enabling women to save more toward retirement.
Change Is Slow but Coming
More-flexible work arrangements offered during parental leave and in later life, such as allowing phased retirement or more time to care for sick or elderly relatives, would also help reduce the gap, Sonsino said.
Sonsino has seen slow improvement on the issue of child care in recent years. “Carer’s leave and credit is a hot topic, and there are more signs that this will be allowed,” she said. For example, Google recently extended the amount of carer’s leave provided to employees to four weeks and will make contributions toward employee pensions during the time an employee takes paid carer’s leave. Several other large companies, such as Aviva, recently have moved to provide 35 hours of carer’s leave per year.
“Fixing the pension gap problem should start with fixing gender pay gaps,” Sonsino said, adding that gender pay gaps are now being addressed with pay equity regulations. She favors employers providing more transparency about employees’ pay rates as a further means to remedy the gaps.
Experts Propose Further Improvements
Experts have urged the U.K. government to take specific actions to remedy the gender pension gap, Sonsino noted. These actions include:
- Improving pay rates for low earners.
- Improving affordable child care.
- Introducing catch-up provisions for pension contribution.
- Ensuring equitable pension rights are part of divorce settlements.
- Offering pension credits for caregivers.
Sonsino proposed additional far-reaching changes to the pension system that could benefit women, such as redesigning a sustainable pension system for two-worker families. She suggested that a joint family pension plan could be created, in place of the current practice of paying into a single worker’s account. The proceeds of the family account would belong to both spouses, rather than to an individual.
McSweeney also suggested extending automatic pension enrollment for Nest, so that it is triggered by achieving an earnings threshold of £10,000 through multiple part-time jobs.
These proposals “could be a little complicated, but then pensions are complicated, and it would be fairer in distribution,” according to Sonsino. “Perhaps a better way to describe what we’re suggesting here is ‘a lifetime savings account.’ ”
Rosemarie Lally, J.D., is a freelance legal writer based in Washington, D.C.