The gender pension gap and how I’ll encourage my daughters to save for retirement
Craig Monahan | October 23, 2019
The UK’s gender pension gap is roughly twice the size of the gender pay gap but as Craig Monahan, Standard Life’s Workplace Proposition Lead reports, generation shifts are already helping to reduce the gap and he explains why deeper employee engagement will be so vital too.
Last year, when government rules were implemented which required firms, for the first time, to disclose the average difference in earnings between male and female employees such disparity was revealed that the subject made the news headlines.
Since then, the gender pension gap in the UK – the difference in pension income for females compared with males – is increasingly becoming a topic of debate. Looking at our statistics, they show that the average value of a male’s workplace pension is 44 per cent higher than a female’s. The figures also highlight how this gap increases in line with age; for the over-50s, the gap is 48 per cent.
While I have always been an advocate for change, some of the logistical issues female employees face in the workplace that lead to the gender pension gap were made very clear to me when my wife took time out to have our two daughters.
The desire and means to make pension contributions
For any employee, the three biggest factors that influence the value of their retirement savings are:
- the money they pay in (whether that’s regular contributions, one-off payments or transfers)
- the investment choices they decide on or, in the case of default, are decided for them
- the retirement decisions they take
To me, these points show how a pension pot is a bit like a snowball. It starts small on the incline but the more momentum it can gather through regular and higher contributions, any investment growth, and making the right decisions along the way, the larger it could grow.
Auto-enrolment has engaged an under-represented audience
As an employee’s pension contributions are inextricably linked to their salary, we can work out that two of the reasons for the gender pension gap are:
- Female employees taking breaks from paid employment or reducing hours worked to care for children or family relatives
- The cumulative impact over time of female employees earning less on average than male employees
Although the amount of contributions paid into a pension is important, this in itself will not solve the problem of the gender pension gap. Auto-enrolment has gone some way to help address the deeper issue of engaging an under-represented audience and what it has achieved should not be underestimated. But while the government will always have a role to play in driving change, the increase in prominence of DC pensions, year-on-year, and the implicit transfer of longevity risk means responsibility for retirement savings ultimately rests with each of us.
Investments: balancing risk and return
When it comes to the investment choices employees make for their workplace pension, there’s evidence to suggest that women are generally more cautious than men. As an example, a recent YouGov survey, reports that only 28 per cent of women say they would feel confident investing some of their money, compared with 45 per cent of men. These figures mean that female employees may not be fully aware of the risk versus return dynamic of investments and could potentially be missing out on investment growth.
As I see it, making the right investment choices is about comprehension. I think it’s fair to say that in the past, some investment communications were geared towards a core male audience of a certain age and wealth. The industry needs to convey this information in a more segmented way so that all employees feel more engaged and better equipped to make the right investment decisions for them. It’s an example where treating customers fairly, could actually mean treating customers differently.
Making targeted content accessible especially at retirement
So for me, the way to address the gender pension gap is through engagement, with targeted information conveyed in a way to help employees make informed choices about their retirement savings.
For example, female employees may not always have the means to make significant pensions contributions if they’ve had time out of the workplace but if they’re aware of a pension’s dynamics and the benefits it offers, they can plan to contribute more when they can afford it. Or if a female employee knows she may be working part time for a few years, she could look to increase her pension contributions while she is still working full time.
As an industry, we need to challenge ourselves about how we tackle long-held ways of communicating the value of a pension and look at how the accessibility of content could help break down the barriers. There needs to be a move away from heavy literature complete with jargon to targeted email, videos, guides, podcasts, infographics and apps that will appeal to all employees and help more engage with their retirement savings.
Standard Life trialled a number of various content formats to communicate with customers in the run up to tax year end and we found that this approach was generally very well received.
A data-driven approach to engagement
Advances in technology are also helping to make pensions a lot more accessible and the industry has taken big strides in this area. We’ve gone from communicating by letter and phone to designing apps that can be accessed through facial and fingerprint recognition. However, more needs to be done to help employees navigate key financial decisions.
We’re currently evolving our workplace engagement strategy using data to offer employees more timely and relevant communications, as well as looking at their end-to-end journey. There is still work to do but the aim is to allow employees to interact with their pension easily, increasing engagement and understanding.
Our statistics show that there’s a positive correlation between digital engagement and the average size of an individual’s pension pot. Our stats also show that male employees are almost three times as likely to log in to our mobile app.
When we have the evidence to show that our data-driven approach to engagement is not just a token gesture but is helping to engage more female employees with their pension, we know it will have been a success.
Looking to the next generation
Over the next 30 years, when future generations enter the workplace, a completely different set of dynamics will evolve which will hopefully go some way to help narrow the gender pension gap.
We’re already seeing long-held stereotypes change. There’s been a shift by many employers to make it a more level playing field in the workplace where shared parental leave and flexible working arrangements, where appropriate, are part of the culture.
Standard Life introduced a shared parental leave policy which I took advantage of after my daughters were born while my wife returned to work. This concept would have been unheard of in my parent’s generation.
Most significantly, a job for life is becoming the exception rather than the norm. The move towards portfolio style careers, where people have a number of different jobs, means taking a career break, whether to look after children or family relatives or to do something else, means flexible working for all employees could be far more accepted and common than in previous generations.
How I’ll encourage my daughters to make the most of their pension
I remember when I first started out in my career and began saving for my pension, someone told me to take advantage of the eighth wonder of the world, compound growth – the average rate of growth experienced by an investment over a number of years.
I will pass this piece of information on to my daughters when they eventually enter the workplace and I’ll also suggest that to make the most of their pension, they should look to:
- Understand the basics as there’s no substitute for knowing what they are doing
- Start saving for retirement early to start the snowball rolling and benefit from compound growth
- Take advantage of the maximum employer contribution match, otherwise they’re leaving free money on the table and they’re not getting the full benefit of their employer’s benefits package
- Increase their contributions by one per cent every two or three years. At the start of their careers, they’ll have other things to save for but get that balance right
- Select an investment that aligns with their age and their savings horizon. When they are young, they can afford the upsides and downs of the investment market so long as it trends upwards
- Diversify their investment selection and build up their knowledge as they go along
But while the girls are still young, I’ll encourage them to make small financial decisions such as regularly saving into their piggy banks (or more accurately, a unicorn bank and a narwhal bank) to buy something on their wish lists rather than spend on small, everyday items. So as they grow up, they’ll know the importance of saving for the future and the steps to take to grow their own wealth and provide for themselves.
And last but not least, I’ll also tell my daughters to remember and visit their dad in his old age.
To find out more about Standard Life’s range of communication strategies to engage your employees with their workplace pension, please go here.
The views expressed in this blog should not be regarded as financial advice.
It’s important to remember that a pension is a long-term investment and as such its value can go down as well as up. It could even be worth less than was paid in. Past performance is not a guide to future results.
This information is based on our understanding of taxation legislation and regulations in October 2019. The legislation and regulations can change. Your personal circumstances also have an impact on tax treatment.