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The other pay gap: the gender pension gap

28 January 2020: the gender pay gap is increasingly well explored by companies, and reporting is becoming more sophisticated and clearer. However, improvements to the pay gap can be quickly undermined by another gap – the gender pension gap. Philippa Kelly, Head of Financial Services at ICAEW, considers new research and identifies key factors causing the gender pension gap and why things need to change.

The gender pension gap is underpinned by the gender pay gap but exacerbated by a number of factors common to the lives of women. The Chartered Insurance Institute’s Insuring Women’s Futures report delves into the data in order to understand some of the causes underlying women’s pension deficit. It also makes practical recommendations as to how the insurance and personal finance profession can together improve women’s lifelong financial resilience. Individually, the factors are easy to accept, but when considered together they make for depressing reading and clearly illustrate why such an extensive gap in financial resilience and pension provision has come to exist. These factors include:

  • traditionally female-dominated roles (such as care and administration) are lower paid;
  • women on average work fewer hours to accommodate other responsibilities;
  • women are more likely to take chunks of time out of the workplace;
  • they are more likely to have multiple small pension pots;
  • they may return to work after having children on fewer hours and lower pay;
  • they are more likely to take up caring responsibilities for older relatives, thereby reducing time for paid work;
  • they may be less engaged with their finances; and
  • they are more likely to depend on (traditionally) a husband’s pension, but may be unclear on what terms they would receive its benefits.

The statistics that illustrate the gap show the need for change. These are:

  • Today, men’s average contributions to defined contribution schemes represent 186% of women’s.
  • In contrast to the gender pension gap, the average long-term residential care cost at age 65 is £37,000 for men and £70,000 for women (including those who do and don’t need care). For those men and women entering a care home between the ages of 65 and 74, average costs in the UK are £82,000 and £132,000 respectively.

Chartered accountants can have a key role in helping companies and their own businesses understand their gender pension gap, as well as the causes of it. The report also highlights practical changes that can help combat the gap, including a flexible working pledge relevant to all employers.