Holborn Assets Reviews The Pensions Gap

Posted on: 19th May 2017 in Pensions

Here at Holborn Assets we noticed that “Be Bold for Change” was this year’s theme for International Women’s Day 2017 (March 8^th). Well, some fairly bold statistics have been published showing that there’s still much to change in resolving the gender gap when it comes to pensions and pay – both in terms of real income and personal confidence:

• Women are less pro-active about saving for their retirement …
• … But their need to start saving is greater than men’s, because employers make less pension contributions to women …
• … And, here in the UAE, men and women disagree over the existence of a gender pay gap at all – with some research saying that women are actually on average paid 2% more than men.

Have you started saving for your retirement yet?

YouGov research published in early March 2017 suggests that your answer will depend on your gender. 8% more men than women of the 2000 Brits and Germans polled said that they have started saving for their retirement. So why the gender gap? The research suggests a reason may be a lack of confidence. Have a look at the statement below: “Overall, I have a sufficient level of financial knowledge to feel comfortable investing my money.” 44% of men agreed with this statement. But only 29% of women agreed that they felt they had sufficient knowledge to invest comfortably. The statement refers to investing in capital markets – not investing for retirement planning specifically. But it still raises relevant questions: does that mean that women actually have less financial knowledge than men? (Surely unlikely!) If so, is that a matter of choice – or is that women simply have less time to spend building their investing confidence? Or is it simply that men and women have access to the same sources of investing knowledge and support, but women simply lack self-belief in what is traditionally the fierce male world of capital investment? Here at Holborn Assets, we believe that there may never be a definitive answer, but welcome the robust analysis that gets us ever closer. Only 17% of women polled had ever invested in capital markets – compared to 31% of men. That’s almost twice as many men as women. “The reasons for the different investment behavior of men and women,” says Dr. Ella Rabener, founder of Scalable Capital which commissioned the YouGov research, “are the unequal financial resources at their disposal and the – at least perceived – lack of financial knowledge of women.”  

British women get less workplace pension

Employers make less workplace pension contributions to women than men, according to insurance giant Zurich’s Workplace Savings Barometer which looks at a quarter of a million pensions. And we’re not talking about historical figures here. This is bang-up-to-date. Between 2013 and 2016, men in the UK have received, on average, an employer contribution of 7.8% of salary each year, compared to just 7.0% for women. And that means women end up with an average £47,000 less in their pension pot than men – according to Zurich calculations based on a 42-year working life. So why is this happening? One reason often cited is the fact that women must take long career breaks in order to bring up children. This factor is also blamed for the general gender pay gap, which is certainly a main cause in less pension contributions to women. UK women in full-time employment earn 9.4% less than men (Office for National Statistics). In 2016, the average weekly wage for women working full-time was £12.82 compared to £14.16 earned by men. Not only do women get paid less to start with. But also Zurich confirms that, “since 2013, women have received, on average, 1% of their salary less in employer pension contributions each year when compared to men.” Is the reason for this lower proportional payment across the board because women are not in the top jobs? The stats might be reflecting the facts that the higher the salary, the more generous the pension package tends to be – and the higher the salary, the more likely it is to be a man than a woman that receives it. Certainly the Daily Telegraph reports that, “men are more likely to work in sectors with generous pension schemes, and more likely to be promoted into senior roles which often come with better pension deals.”

UAE men and women disagree on gender gap

According to a survey conducted by the Ministry of Economy in January 2016:

• 29% of women believed that men were generally paid more than women at their company,
• 65% of men believed that this was not the case at their company,

What’s behind these statistics? Why do over twice as many men as women think the gender pay gap does not exist? Are the men simply in denial? One issue is that statistical research varies on the nature of the UAE pay gap. We know – thanks to Jan 2017 research from HR consultants Universum Global that women in the UAE certainly expect to earn 99% what men do – and 2014 figures from the Institute of Management Accountants from indicate an actual pay gap of 3%. But how about this for an upset? The Economist reported on expansive 2016 research which looked at 8m employees across 33 countries that, “the United Arab Emirates, on the other hand, has a reverse pay gap. Women at the same level, company and function actually earn 2% more than their male counterparts. This is partly because fewer women participate in the labour force, and those that do tend to have higher levels of education.”

What about the triple-lock pension policy?

Whether you’re male or female, if you’re a Brit with an interest in their pension then you will probably know about the triple-lock pension policy. This is a UK Government policy which guarantees an annual increase of 2.5% in state pension payouts. A parliamentary commission recommended in November 2016 that the policy should be scrapped and replaced with a “smoothed earnings link”, saving £15bn. The triple-lock was intended to support all pensioners, regardless of gender. And, after the UK Spring Budget, there’s news that suggests the Government will be in no hurry to scrap it: the Budget revealed that average earnings are expected to rise by 3% a year until 2021, which means the triple-lock will not cost the Government anything for that period. That does not mean, however, that the Government will not act. The only certainty, from our perspective here at Holborn Assets, is that the long-term future of the triple-lock policy is uncertain. Research published by the Work and Pensions Select Committee in November 2016 found that, to support the triple-lock annual increase in state pension payments, the State Pension Age (SPA) will need to rise to 70.5 years by 2060. This would have the effect of excluding more people in need. The SPA is currently 65 for men, and 63 for women (the female SPA is rising until 2018 when it will be set at 65, the same as for men).