23 Mar 2020
Our Evidence Assistant, Amy McSweeney, explains the factors that can affect women financially in later life.
Thursday 14th November marks Equal Pay Day, the day after which women are said to ‘work for free’ due to the gender pay gap. Figures released last week showed that the gap is widest between men and women in their 50s. Since there are a million more women over 50 in the labour market today than a decade ago, this is an increasingly important issue. Income inequalities mean that women are thought to earn £260,000 less over their careers than men has profound implications for their later lives.
The first ‘problem’, albeit a good one, is that women tend to live longer than men. Although the difference in life expectancy is narrowing, a woman of 65 is likely to have to fund 21 years of retirement to a man’s 19. Earlier this year, the Pensions Policy Institute estimated that women need to save 5-7% more than men by retirement to ensure the same level of income. Since the average private pension wealth of a woman in her 60s is a third of men in his 60s, it is clear that many will not have enough to live comfortably.
The reasons for the savings gap are no mystery. Motherhood, caring and poor health are all factors that make career breaks more likely, translating into a lower income in retirement. In 2017, women on average received £126.45 state pension per week, compared to £153.99 for men. We also know that women who have worked most in low-paid part time work are no better off in retirement than women who have never worked outside the home.
Adapting for ageing by introducing flexible working for all and making adjustments so people with health problems can continue working for as long as they want are two key routes to reducing these inequalities. For those who are out of work due to caring or poor health, we need to make sure that more are claiming the National Insurance credits due to them, which will increase their state pension entitlement.
Our pension system is still designed for people with a continuous employment history at one company. This has never, and does not, reflect the realities of women’s working lives.
As well as having smaller pots than men on average, women are significantly less likely to feel confident that they know what they’re doing when it comes to pensions.
One survey found that there was a pensions ‘confidence’ gap of at least 15 percentage points between men and women in every age group. This was the percentage of people who thought that they knew enough about pensions to make decisions about how to save for retirement. We need to understand why existing pension messages are not reaching women and demonstrate the financial impact this is having on individuals and the state. Not only does the state have to spend more on means-tested benefits for women on low incomes in later life, but women who have contributed all their lives are not currently able to reap the rewards in retirement.
Government has begun to recognise that women face unique challenges when it comes to saving for retirement and gone some way to help reduce the resulting inequalities.
The new state pension has reduced the state pension gender gap by 70%. This is a rare good news story, but there is so much more to do. For all but the lowest earners, the state pension has a very low replacement rate – the percentage of your previous earnings you can expect to have in retirement. This is why it’s so important for people to have occupational or private pension savings.
But for many, including women, our current pension system isn’t working. How we work has changed, and many more people are self-employed or employed in the gig economy, and they are generally not saving in to an occupational pension scheme and missing out on employer contributions. Our pension system is still designed for people with a continuous employment history at one company. This has never, and does not, reflect the realities of women’s working lives, or the changing economy. We need to act now to recognise that the world of work has changed, and so the world of pensions must too.