Aviva : Gender Pension Gap widens from the age of thirty-five

New research from Aviva has found the Gender Pension Gap begins to widen significantly from the age of thirty-five.

Based on the workplace pension employer and employee contributions of just over 2 million savers and retirees ⁽¹⁾, the gap between men and women's pension contributions for 35 to 39 year olds is 18%. It then increases to 23% for 40-44 year olds and 29% for 45-49 year olds. It then stretches to 35% for 50 to 54 year olds.

This suggests a clear line in the sand around the age that women are often making milestone career and childcare decisions and opting to work part-time ⁽²⁾.

Table 1: Gender Pension Gap by pension contributions

Age	Gap in pension contributions
20-24	13%
25-29	16%
30-34	15%
35-39	18%
40-44	23%
45-49	29%
50-54	35%
55-59	40%
60-64	45%
65-69	49%

The amount paid in contributions has a big impact on what is received at retirement and the difference between men and women's contribution rates is stark (as shown in Table 1).

For most people, the effect of working part-time means a reduction in contributions paid into their pension. If a person opts to reduce their full-time working hours to three days a week, they might expect their pay and their pension contributions to reduce by 40%. However, because of auto-enrolment (AE) thresholds, the impact can be greater than that.

A person earning £30,000 opting to reduce their hours by 40% would see their pay reduce by 40%. However, because of the lower qualifying earnings threshold (LET) under AE, their pension contributions would reduce to around 50% of their full-time value. A worker earning £20,000 would see their pension contributions reduce by over 58%.

Emma Douglas, Director of Workplace Savings & Retirement said:"Pension contributions are unlikely to be a deciding factor when considering whether to work part-time. What is important is that people understand the long-term impact on their pension when they are making that decision. This is crucial to good financial planning. Some people might consider upping their pension contributions, but this would have to be carefully balanced against disposable income. Another option some parents may consider is sharing the caring responsibilities to help spread the long-term financial impact."

Remove auto-enrolment thresholds to level up pensions

One significant change government could make to help women in this position would be to remove the LET. It has the potential for the biggest impact on closing the Gender Pension Gap because it would mean women in a pension scheme would get a contribution from the first pound they earn. It can be implemented without the need for legislation and has already been promised by government for the "mid-2020s".

Emma Douglas said: "We welcome the recent freeze of the lower qualifying earnings threshold (LET), particularly because we support a phased approach to its eventual removal. This is acutely important right now. With inflation hitting record highs and the increased cost of living, it is set to be a financially challenging year for many, and long-term savings might not feel like a priority.

"We are calling on government to put a 'roadmap' in place now for how and when it will implement the removal of the LET ⁽³⁾. There is never a 'perfect time' to increase pension contributions, but a phased approach should help to ease any sudden financial impact on employers and employees. Employers and employees need time to plan. The clock is ticking and the longer it does, the less there will be in the pension pots of part-time working women."

Abolishing the lower qualifying earnings threshold would increase pensionable pay by up to £6,240 per year and total pension contributions by £9.60 per week for everyone who earns more than £6,240 a year. This could mean up to an extra £115,700 in pension pots at retirement ^(4).

Table 2: Aviva Data - Additional Pension Pot at retirement, by age

Age when lower qualifying earnings threshold is abolished	Additional Pension Pot at 68 years old
18	£115,700.00
22	£94,000.00
25	£80,000.00
30	£60,500.00
35	£45,000.00
40	£32,700.00
45	£23,000.00
50	£15,400.00
60	£5,000.00
65	£1,620.00

Aviva tips on how to help close the gender pension gap:

• If you are working part-time and are automatically enrolled into a workplace pension scheme, consider increasing your monthly contributions, if it is affordable.
• If you earn less than £10,000 per year, speak to your employer about your options for joining your company pension scheme.
• If you are thinking about reducing your working hours to help balance family life, you might want to consider whether it is better for you or your partner to work part-time. As part of those considerations, you might want to look at which of you gets higher employer pension contributions.
• When it comes to saving into a pension, starting early allows a small contribution to build up over time.
• For those in a long-term relationship, have a stake in your finances. Should divorce ever come into the picture, keep pensions at the forefront of your mind when splitting assets.
• Check your National Insurance record to see if you will get the full State Pension amount when you retire. You need a total of 35 years of National Insurance contributions, or, in some cases, you can apply for credits. If it looks like you might be short, you might have the option to pay to fill in the gaps.
• Apply for child benefit even if your overall household income means you need to pay it back through a high-income child benefit charge. If you are not working while looking after a child you get state pension credits automatically until your youngest child is 12 years old as long as you are claiming child benefit. If you do not claim child benefit you do not receive the credits.
• Talk to your employer about the policies they offer. For example, Aviva offers six months' equal parental leave irrespective of gender, alongside salary exchange - which means employees taking this leave maintain full pension contributions.

-ends-

_Source:

_{(1) Aviva Workplace Pension Data: Percentage difference in mean total contributions paid in January 2022, men versus women, by age group, based on a sample of 2,073,000 workplace pension plans receiving contributions in the month.}

_{(2) House of Commons Library | Women and the Economy | 02 March 2021: Women made up the majority of part-time employment (38%), compared to 13% of men. Contains public sector information licensed under the Open Government Licence 3.0.}

_{(3) Aviva | 05 Jan 2022 | Remove auto-enrolment thresholds, says Aviva}

_{(4) Assumes an employee earns at least £6,240 per year and opts to join the pension scheme at age 18 and taking benefits at age 68. Threshold and earnings increase annually in line with inflation at 2.5%. Investment returns are assumed to be 4.5% per year and charges 0.75% per year.}

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