A major new analysis of the gender pension gap published today by LCP has found that the success in reducing gender gaps in state pensions could be undermined in future if inequalities between men and women in workplace DC pensions continue to rise.  

The new report by LCP includes: 

• A review of the research on gender pension gaps. 

• The first detailed analysis of the DWP’s 2023 statistics on the gender gap in private pensions. 
• New projections from LCP on the pensions that men and women will draw in future from the state, private sector DB and DC pensions. 

LCP say that six main sources of gender pension inequality have been identified. These are:  

• The gender pay gap, which often translates directly into unequal pensions. 
• The ‘caregiver penalty’, where the much greater number of women taking on caring responsibilities has a negative effect on their relative pension position. 

• The ‘longevity penalty’, where women typically need a larger pension pot than men because it has to support them over a longer time period. 
• Relationship breakdown, where uneven pension accruals during a relationship are not fully equalised following divorce or the end of a long period of cohabitation. 
• Differences in the impact of the rules on automatic enrolment, which mean that, amongst employees, women are more likely to be excluded than men. 
• Differences in financial confidence, with surveys often showing lower levels of confidence amongst women when it comes to investing. 

Turning to the DWP analysis, whilst LCP welcome the publication of the first official figures on the gender pension gap, they point out the limitations of the new official figures.  A key point is that state pensions are excluded, even though these provide more than half of the income in retirement of a typical woman. The DWP figures also focus only on people who have a private pension, and so exclude gender differences in the number of men and women who have no non-state pension at all. 

Key findings from LCP’s own projections and analysis are: 

• The gender pension gap in state pensions has almost been eliminated for the newly retired. An FOI reply received by LCP found that in 2022/23, there was a gap of just 2% between the state pensions of newly retired men and women, and that full equality is expected to be attained during the 2030s. This is because of the phased introduction of the new state pension, which began in 2016. 
• Amongst private sector DB pensions, the gap between men and women is set to fall sharply; however, this is primarily because men have in the past been the main beneficiaries of private sector DB, and as the impact of scheme closures works its way through into retirement, male DB pensions will fall sharply; the report also notes that DB pensions remain open in the public sector where the majority of the workforce in the NHS, teaching and local government is female. 
• However, in DC LCP forecast growing inequalities between men and women; the research finds that there is currently a gap of around £25 per week between the average DC pension income of men and women (based on DC pots being annuitised at retirement), but this gap will rise to over £30 per week (in current earnings terms) by the mid-2040s. 

The report concludes with a series of ‘calls for action’ directed to government, employers and the pensions industry.    

Key recommendations  

For the government: 

• To continue with the annual publication of gender pension gap statistics, with more commentary on underlying causes and a commitment to tackle them.
• To take further steps to reduce the inequalities that arise following the birth of a child, including effective policies on shared parenting and greater provision of support for childcare for the youngest children.

• To review the position of the growing number of cohabiting couples with a particular focus on the way in which gender pension inequalities may persist after the break-up of such relationships, as well as the effectiveness of current legislation around pension sharing on divorce.

For employers:

• To go beyond statutory gender pay gap reporting to understand more fully the pay gaps across a firm, and to take action to tackle the wide range of underlying causes.
• To review support given to new parents, enabling couples to share parental responsibilities more evenly in an economically viable way.
• To support workers with caring responsibilities in later life, with a focus on flexible working and allowing such workers to undertake a period of intensive caring without losing their ability to return to paid work at a later stage.

The pensions industry:

• For pension schemes need to understand more about the gender pension gap *within* their schemes to see if more can be done to improve the relative position of women.
• For schemes and providers to equip both women and men to better understand their pensions, to be empowered to make more informed choices. 

Commenting, Laura Myers, LCP partner and one of the report’s authors said: 

“Our research suggests that there has been welcome progress in some aspects of the gender pension gap, notably the reduction in inequality in state pensions. But there is a real risk of a new generation of pension inequality if action is not taken. In a world of DC pensions in particular, pension outcomes hold up a mirror to inequalities in the workplace and the different labour market experiences of men and women. Without concerted action by government, employers and the pensions industry to tackle these underlying causes, the gender pensions gap may be with us for decades to come.” 

Kim Brown, Chair of the industry-wide ‘Pensions Equity Group’ said: 

“Inequalities in pension outcomes need not be a permanent feature of the pensions landscape. This research shows that progress is possible in reducing aspects of the gender pension gap, but important differences still remain. It is vital that government, employers and the pensions industry work together to tackle the multiple causes of pensions inequality. Only in this way can we make sure that all people can look forward to retirement with confidence.”