A new report published today by the Department for Work and Pensions ahead of the Pensions Commission report expected later this week has highlighted the growing gender pensions gap.
It warns that under the current private pension system, certain groups are at risk of accumulating little or no private pensions over their working-age life, especially those with long spells of non-employment or self-employment, and to a lesser extent those mostly in part-time work.
The report warns that sustained periods of non-employment or part-time work are particularly common among women, especially from ethnic minorities, and other groups that tend to be more disadvantaged, such as those who report being disabled in their later working life. The labour market patterns tend to lead to lower private pension saving among these groups, the DWP said.
Differences in pension saving patterns also translate into differences in retirement outcomes. People who are mostly in full-time paid work have much higher retirement incomes than, for example, women who have taken significant breaks from paid work in order to raise children.
The report also warned that marriages and partnerships can end due to divorce, separation or bereavement, which can expose people, in particular women, to lower resources in later life.
The DWP’s report concluded: “We find that ‘life events’ (such as having a child; relationship breakdown; or changing housing tenure) tend to have a limited effect on pension participation or changes in contribution rates for people who remain private sector employees. However, they can still impact the amount people save in private pensions.
“Most notably, private pension saving of men and women diverge after the birth of a first child, almost entirely due to changing working patterns and earnings rather than due to pension contributions conditional on labour market behaviour.”
Kelly Parsons, head of DC Proposition at consultancy Broadstone, said: “The DWP’s research highlights the growing challenge around pension adequacy in the UK and the extent to which retirement outcomes are still heavily shaped by people’s working lives. The report shows that people with more disrupted employment patterns, lower earnings and caring responsibilities are significantly more likely to face poorer retirement incomes, with women particularly exposed to these risks.
“It underlines how periods spent out of the workforce caring for children or relatives can have a lasting impact on long-term pension saving. For example, there is a significant widening of the gender gap in pension contributions upon the birth of a first child – a divide which continues to increase over the consequent years.”
Ms Parsons said that without further action to support carers, lower earners and people with non-linear careers, ‘there is a real danger that today’s working patterns continue to translate into entrenched financial inequalities in retirement.”
"The disparities are particularly stark for women. In the same cohort, just 33% of women spent more than three‑quarters of the period in full‑time employment, compared with 67% of men. Women were far more likely to be mostly part‑time or mostly out of paid work, reflecting caring responsibilities and career interruptions that continue to translate directly into lower private pension accumulation across the life course. Until this structural inequality is addressed then pension inequality will always follow."
The report has been published ahead of the interim Pensions Commission report which is due to be published later this week. It is expected to outline its recommendations for closing the gender pensions gap and for the long-term future of the UK’s retirement system.