- People who spend long periods out of work, working for themselves or working part-time are more likely to have pension shortfalls, according to research from the government and Institute for Fiscal Studies (IFS) published today (source: Life courses and pension saving patterns – GOV.UK)
- The average weekly retirement income for those who had been in full-time work more than 75% of their working life was £403, compared with £219 for those mostly working part-time – a gap of £184 a week in retirement
- Women are more likely to experience career gaps or working part-time
- It’s not just that having a child reduces people’s likelihood of being in a pension, or the percentage of salary they put into a pension, it’s that changing working patterns and earnings have a knock-on effect on how much they save
- AJ Bell Money Matters research on the gender pension gap showed a fifth (21%) of women said they worked part-time between the ages of 29 and 40, compared with 5% of men
- Automatic enrolment changes could be key, but they cannot close the gender pension gap alone
Sarah Coles, head of personal finance at AJ Bell, comments:
“The part-time pension gap hits women hard. Women are more likely than men to spend long periods out of work, working for themselves or working part-time, which all feeds into sizable pension shortfalls. What’s particularly shocking is that those who work part-time can actually end up with a lower average retirement income than those who spend most of their life not working.
“The findings come from the Institute for Fiscal Studies, after the government asked it to explore the impact of life events and working patterns on pensions to feed into the work of the Pensions Commission.
The part-time penalty
“Working full-time for most of your career tends to leave you with a dramatically better pension overall. According to the IFS report, the average weekly retirement income for those who had been in full-time work more than 75% of their working life was £403, compared with £219 for those mostly working part-time. Full-time work also makes you more likely to have built pension savings of your own. Among those who were in full-time work at least 75% of the time, only 12% had no individual private pension wealth, compared with 25% among those working mostly part-time.
“Women are significantly more likely to work mainly part-time (17% compared to 2% of men). In many cases this comes as a result of having children, and taking on caring responsibilities. As a result, the gender gap in pension contributions widens significantly with the arrival of the first child, which is when differences in employment rates, hours and wages also start to emerge.
Source: DWP, IFS.
“This reflects AJ Bell’s findings in researching the gender pension gap, which identified that women’s pension contributions start to fall behind men at the age of 28. It found that financial pressures push pension savings down the priority list – so only 8% of women prioritise their retirement savings at this age, compared to 22% of men.
“The report also found that women aged between 29 and 40 are more likely than their male counterparts to work part-time, with over a fifth of women doing so during these years versus just 5% of men.
“One horrible finding by the IFS is that some women, working part-time and continuing to pay into their pension whenever they can, can actually end up worse off than those who spend most of their career out of work. On average, in retirement, part-timers have lower average incomes – at £219 a week compared to £234 for those mostly out of work during their career and receiving more state benefits.
“The balance changes when you combine the income of couples, because the way the benefit system works means the average income in retirement for those who spent most of their career out of paid work is £340, while for those in part-time work it averages £346.
The impact of being part of a couple
“The gender pension gap can’t be considered in isolation, because so many people will retire as part of a couple, and in most cases it’s a partner of the opposite sex. If you combine the income of both people within a couple, the gap closes. Among those born between 1947 and 1959, 21% have no private pension wealth of their own, but only 15% of couples have none.
“Combining couples’ income makes a particular difference to women: almost a third (29%) of women and 13% of men have no private pension wealth. But when you look at couples, these figures fall to 18% for women and 11% for men. It still leaves significant issues around who makes financial decisions and has their needs met when incomes are so uneven, but it closes the fundamental financial gap.
“However, being so reliant on a partner can mean divorce, separation or bereavement, and can push some women into difficulties later in life. It also means single people can struggle, especially if they are divorced or never married. Some of this is the loss of the pension in the divorce itself, and some is the change in living situation. Private sector employees whose marriage ends due to separation, divorce, or death of a spouse are more likely to stop saving in a pension (10%) than those with no change in marital status (8%).
What can be done?
“AJ Bell’s research showed that women’s priorities change by the age of 41, when they’re just as likely to prioritise pensions as men. It’s not too late to close the gap, but it requires couples to work together on their pension savings and make the most of pension schemes and tax benefits. It’s particularly important for couples to have frank conversations about their finances, both now and in retirement, so they can plan their finances together as fairly as possible.
“Solutions also lie in policy. AJ Bell identified that changes to the automatic enrolment system can play a key role. The law now allows for the minimum age for automatic enrolment to fall from 22 to 18, and the government and employers need to put together a timetable for that to happen. Another lever the government could pull would be to reduce the automatic enrolment earnings threshold, to bring lower earners into the scheme and to apply it to people’s total income, rather than their income per job, meaning those with multiple part-time roles are picked up. On top of this, there needs to be an end to damaging pension speculation and a commitment to a pensions tax lock which would provide certainty for savers who are doing the right thing and saving for their futures.
“It’s not just pensions policy that makes a difference. A major part of the solution lies in moves to close the gender pay gap. This IFS analysis demonstrates the impact that working part-time has on people’s income and pensions, and more needs to be done within workplaces to enable couples to care for their children fairly without either of them paying a price at work.
“The IFS report concluded that automatic enrolment policies on their own cannot eliminate the gender pension gap. For that, individuals and couples, the government and pension providers all need to work together to enable women to make the most of their pensions, wherever they are in life.”
