 By David Millar, Head of Marketing Communications, Corporate Benefits, Friends Life
It’s been said in the past that the pensions system was ‘designed by men for men’, because it only really works where people have a strong, long term connection to the workplace. It’s a strong statement and one that Friends Life has looked into. We have found evidence of this in the scheme data we analysed. Looking at the data for more than 700,000members investing in pension schemes reveals a startling saving gap between men and women. This feature will look at this more closely and what AE and financial education can do to bridge this gap.
A few years ago I was lucky enough to be invited to a discussion at the House of Lords where several Parliamentarians advocated that early access to tax-free cash would have considerable advantages. Not only would it help stave off bankruptcy for those who needed access to money but it would also act asa stimulus for the economy.
However it was another section of another presentation that particularly struck me: that the pensions system was ‘designed by men for men’. Clearly, the pensions industry itself is male-dominated, but I’d never considered that the actual vehicle of a pension itself was skewed toward men. As I listened, I learned why: pension schemes have always provided a benefit for people who save regularly, who stay in contact with the workplace and whose salaries increase the longer they work.
While it is open to anyone to have a strong, long term connection to the workplace, in our society it is more likely to be a woman who takes on the role of being primary carer for both young children and elderly parents alike. Therefore, as the argument runs, women tent to work part-time hours more often than men and have more time outside of paid employment altogether.
Generalising, the average man starts employment working five days a week and continues until a time close to retirement. For women, on average, part time working tends to start earlier in their careers. This probably contributes to the fact that the peak earning age for men tends to be in their early 50s, whereas women’s peak earnings tend to be at a much younger age. Even if your salary doubles between the age of 30 and 40, if you only work half the hours that you used to, you are only back to where you started.
It was an interesting hypothesis that I discussed with some colleagues and which made us realise that we probably needed to consider gender split communications more seriously. The issues faced by men and women are not necessarily the same when it comes to pensions savings.
Roll forward several years and I see some evidence of this in a study of Friends Life data for more than 700,000 members investing in pension schemes. According to our data, which ran to the end of October 2012, pension contributions rose by nearly 16% over the previous four years. Split the data by gender and a less positive story emerges- men’s contributions have grown by 17% as a whole, but women’s by 15%. This may not seems like a huge difference, but whilst the percentage growth differential may be relatively small, in monetary terms women seriously lag behind their male counterparts when it comes to saving. According to our data, women make an average monthly contribution of £210 compared to men at £336 and the gap has been widening. In Q3 2008 women contributed £104 less than men a month, whereas in Q3 2012 the gap was £126.
The obvious cause for the difference is that pension contributions are often based on a percentage of salary and on average women earn less than men (20% less based on median hourly earnings). Furthermore, women work part time much more than men (42% of women work part time compared to 12% of men)*. However, when you bring age into the equation alongside gender, the difference and less easily explained. According to ONS figures for the 22-29 year-old bracket, men working full time actually earn 2.5% less than women. Yet, based on the contributions data we looked at the under 30 age group, men’s contributions are on average 25% higher than women of the same age. This suggests that at the very youngest age in particular, at which point making even a relatively low pension contribution can make a big difference in the ‘pot’ size at retirement, the industry is failing to engage women with the concept of pensions saving. But if it is true that women are more likely to start working part-time, the impact of the early contributions on their eventual amount saved is disproportionately larger than for men, who can expect to see a stronger growth in salary on average over their careers.
Our data also reveals that significantly more men than women have a pension at all, with men accounting for 60% of our pension customers and women just 40%. That’s not easily explainable either, because ONS data shows the gender split of the UK workforce is virtually equal, with men accounting for 51% of the workforce and women 49%. Could it be that families make decisions as to which one takes on the task of saving for the future and this tends to be the partner with the largest salary? Or is it just an accident of our data set? Either way, the introduction of auto-enrolment may make a difference and the impact it has will be interesting to follow.
*ONS Annual Survey of Hours and Earning 2011, available at www.ons.gov.uk/ons/dcp171778_256900.pdf
The full report, showing the Friends life data, is available online at www.friendslife.co.uk/workplacesavingsindex
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