Pensions
Henry Tapper, chief executive officer for AgeWage, discusses ways to narrow the pension gender pay gap Mind the gap
T he pension gender pay gap is a consequence of women spending less time in the workplace and getting paid less when they are working. The recent report, New Choices, Big Decisions: 5 years on , (https://bit. ly/2QQEmD2) (sponsored by State Street and The People’s Pension), has not had the attention it needs or deserves. It recommends that workplace pension providers should explore the possibility of communicating with female members who work part-time, in their mid-40s and beyond, to explain the ramifications for the size of their pension pot of not having up to an extra two days a week of work. The People’s Pension claims that on average women have £7,000 per annum less in pension rights than men, not just because of the gender pay gap but because they are unproductive and pay no pension contributions when men are forging ahead. The People’s Pension calls for providers to speak with women who have deferred pension rights but no current contributions and nudge them back to work. This assumes, however, that women want to return, and indeed that it is financially viable for them to do so. As Jenna Gadhavi points out in a recent blog (https://bit.ly/3b96iJc), many women who leave the labour market to have and bring up children, miss out not just on a wage but on future pension rights in whatever form they build up. Getting the balance between caring for young families is one thing, but we also know that the majority of elderly care is provided by women and usually on an unpaid basis. Many women swap a lifetime of paid work for a lifetime of unpaid caring – and have few lower pension rights/pots as a result. Commenting on the article, Norma Cohen, a veteran Financial Times journalist, points out: “It is becoming increasingly clear
that provision of high-quality, affordable childcare is a necessity, not a luxury, in a modern economy. Given the rising proportion of elderly people in the UK compared with those of working age, it is clear that government policy must aim at helping those of working age be as productive as possible. That means making it much easier for women – a majority of university graduates – to both raise families and participate at work.” ...on average women have £7,000 per annum less in pension... I agree, the problem goes deeper than making working women aware of their need to pre-fund pension contributions prior to having their family. Cohen sees a systemic problem and calls for a systemic solution. There is a beacon of hope for women, arising from legislation that means women cannot be given lower annuity rates than men. This extends to scheme pensions, so that if a defined contribution (DC) pension entitlement is based on the build-up of money in a notional pot, that pot cannot pay a bigger pension to a man than a woman, even if a man is likely to get the pension for shorter than a woman. This goes for the state pension too, which pays the same to women as men provided both have equivalent National Insurance records. (We know that many women have inferior records and this too needs to be addressed.) The conscious decision of the European and UK courts to provide a bias towards women in unisex annuities and equalised pensions has meant that women are
benefiting from better pension rates than previously. But DC pensions that pay out as cash or through drawdown or simply roll-up, miss out on this female pension perk. Drawdown works best for men and perpetuates a bias we find elsewhere in the system. The People’s Pension, now Britain’s second biggest DC pension scheme, looks after the retirement interests of millions of women. Its work with Ignition House shows that the problems for savers are systemic: ● Savers are scared of planning for the future as they don’t want to discover the ‘truth’. ● Savers underestimate the financial risk of growing old and don’t understand how inflation can impact their savings. ● The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up. I suspect that the problems unearthed by the report cannot be nudged away. Systemic problems need systemic solutions. Isn’t it now time for schemes, like The People’s Pension, to offer all its members the option of a scheme pension paid from a pooled pot where women can benefit from the same rates as men and enjoy freedom from pension freedoms that can work against them? The actuarial assumptions that underpin collective defined contributions (CDC) work in favour of women, just as unisex annuity rates do. The options in the Pension Schemes Act (section 48) for multi-employer schemes present an opportunity for it to systemically reduce the pension gender cap. We are likely to see the reintroduction of scheme pensions from DC schemes when CDC come on stream from the end of this year. Put more bluntly, The People’s Pension could (and, in my opinion, should) go CDC. n
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| Professional in Payroll, Pensions and Reward |
Issue 71 | June 2021
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