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Gender gap in private pension income set to persist 'for decades'

Model figures in front of two piles of coins, with the men's pile much taller

There is still a significant gap between men and women's private pension savings, and it's almost entirely due to differences in labour market patterns.

That's according to new research by the Institute for Fiscal Studies (IFS), which highlighted the change in women's employment rates, hours worked and hourly wages after the birth of children.

For the first time, men and women reaching the state pension age now have similar state pension incomes. But even among the youngest workers, a lower amount is put into women's private pensions each month than men's, on average, and this gap open up especially after having children. As a result, the gender differences in average pension incomes will persist for decades to come.

Measuring the gender pension gap

The IFS study, funded by the Nuffield Foundation, found that among all 22- to 59-year-olds, including those not in paid work, 59% of women were saving into a pension in 2019, compared with 66% of men. Annual pension contributions for the year averaged £2,600 among women and £3,400 among men.

Two years before the arrival of a first child, prospective fathers and mothers make, on average, fairly similar contributions to their pension. However, six years after the birth of the first child, average contributions made by fathers are more than twice the average contributions made by mothers.

"Policymakers concerned with this gap should see it as part and parcel of labour market issues, as opposed to a completely distinct issue with private pensions themselves," said Laurence O'Brien, IFS research economist and an author of the report.

Alex Beer, welfare programme head at the Nuffield Foundation, added that addressing the gender pensions gap "requires a multifaceted approach, with policies to tackle gender inequalities in the labour market at its core".

Smaller contributions, smaller pension pot

Separate research by Aviva shows that the gap between women and men's pension contributions for 35-39-year-olds is 21%, rising to 24% for 40-44-year-olds and 27% for 45-49-year-olds before stretching to 32% for those aged 50 to 54.

This imbalance persists into retirement with women aged 60-65 having pension pots which are on average just over half (57%) the size of men's pots at the same age.

"This suggests a clear line in the sand around the age that women are often making milestone career and childcare decisions and considering opting to work part-time," said Michele Golunska, managing director for wealth and advice at Aviva. "Pension contributions are unlikely to be a deciding factor when considering whether to work part-time, but what is important is that the long-term impact on a pension is understood when making that decision. This is crucial to good financial planning. Some might consider upping their pension contributions, but this would have to be carefully balanced against disposable income. An option that some parents may consider is sharing the caring responsibilities to help spread the long-term impact on pension savings."

Posted by Fidelius on March 20th 2023

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