When people think about retirement, they probably envisage a time when they will finally have the time to relax, do those things they always promised themselves they would do and look forward to enjoying the rewards of a life’s labours.
However, despite significant progress being made over the past few decades in other aspects of life when it comes to gender equality, this idyllic vision of the future often collides with a harsh reality for women when they retire as they generally receive substantially lower retirement benefits compared to their male counterparts. The reason for this is because of something called the gender pension gap.
Here we will help explain what the gender pension gap is, highlight its implications and consequences and look at what needs to happen to get rid of it.
What is the gender pension gap and why does it exist?
While exact figures will vary across countries and regions, a consistent pattern exist and the disparity between men and women’s pensions frequently casts a shadow over women's financial security in their golden years.
In the UK for instance, recent research highlights the extent of the problem. At the age of 65, the average UK woman has only 33.5%* of the pension savings of a man of the same age. Shockingly, to accumulate an equivalent pension, these women would need to work an additional 18 years in full-time employment.
The main drivers behind this gender pension gap are the contributions made during one's working life and the element of time. Contributions play a pivotal role in determining the size of a pension pot. As pension contributions are closely tied to earnings, women, who generally earn less than men because of the gender pay gap, tend to have lower contributions. Consequently, their pensions receive less benefit from the compounding growth and compound interest that are crucial for long-term pension growth.
Many industries and roles which women tend to feature more in, such as retail and the caring sector are often undervalued and underpaid. This can perpetuate gender wage disparities, affecting both current earnings and future pension benefits.
However, the gender pension gap is further compounded by other factors beyond salary discrepancies. For example, women are more likely to work multiple part-time jobs, often falling short of the minimum income threshold to qualify for a workplace or private pension. Also, career breaks to care for children, elderly relatives, or manage the effects of menopause also disproportionately affects women.
These breaks disrupt both earnings and pension contributions, and the longer the gap persists, the more challenging it becomes to bridge. Research also suggests that women face more difficulty than men in understanding the complex language and jargon associated with pensions with nearly 53% more women than men believing they would save more into their pension if it were not for it all seeming so complex!
What are the implications and consequences of the Gender Pension Gap?
The gender pension gap has far-reaching consequences, impacting women's financial security, independence, and overall well-being during retirement. The gender pension gap means women are at a higher risk of being in poverty in their later years and a greater likelihood of having to rely on partners or family members for financial support during retirement. Financial insecurity has a proven negative affect on both mental and physical well-being, which can have a direct impact on quality of life and the possibility of illness in old age.
The gender pension gap can also impact future generations, as women's financial struggles in retirement and reliance on family for help and support can limit their ability to provide support for their children or grandchildren.
What needs to be done to address the gender pension gap?
Addressing the gender pension gap is no small feat and will require efforts from various stakeholders. Governments need to look at how they can promote pay equality, offer paid parental leave, and encourage flexible work arrangements to alleviate the impact of career interruptions that women often face. Employers should also look to support women's retirement planning by offering flexible work options, financial education on retirement planning, and through the use and implementation of gender fair promotion and compensation practices.
Women can also look to improve their own financial literacy and understanding of financial matters including pensions and retirement, to empower themselves to help narrow their own pension gap. It is also important that we all play our part by supporting women's groups, NGOs, and activists who play a crucial role in raising awareness about the gender pension gap and pushing for systemic changes.
The gender pension gap stands as a stark reminder that, despite great strides in gender equality in many areas, gender inequality does prevail in our societies. It highlights the need for ongoing improvements and solutions that address, not only the economic factors, but also the societal norms and policies that ensure these disparities do not continue. By endeavouring to close the gender pay and pension gaps, we are trying to create equitable retirement for women, but also a more just and inclusive society for all.
*Stats taken from Now: Pensions' Gender Pension Gap Report 2022
Remember, your investments can go up and down and you could end up with less than you started with. Past performance does not guarantee future results. The information provided is financial guidance and should not be considered financial advice.
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