IFS: For the first time, men and women reaching the state pension age now have similar state pension incomes; but gender gaps in private pension income will persist for decades

Among those born in the early 1950s, the difference between men’s and women’s average state pension incomes has closed to essentially zero. This is in contrast to those born a decade earlier, among whom the state pension income of women is roughly 25% lower than that of men. However, substantial gender gaps in private pension incomes remain. Among those born in the early 1950s, women have private pension incomes around 45% lower than men. There are also differences in the pension contributions of working-age men and women.

Gender gaps in pension saving are almost entirely driven by differences in labour market patterns (employment rates, hours worked and hourly wages) which particularly open up after the birth of children. These inequalities between men and women remain even for the youngest working-age individuals, implying there will be persistent gender differences in average private pension incomes for decades to come.

This is the overarching finding of new IFS research, funded by the Nuffield Foundation as part of a series of reports on ‘Pension saving over the life cycle’, launched today (8 March), which is International Women’s Day.

Key findings on gender gaps in pension saving include:

• Driven by differences in employment rates, hours worked and hourly wages, among all 22- to 59-year-olds, including those not in paid work, 59% of women were saving into a pension in 2019, compared with 66% of men. Average total annual pension contributions were £2,600 among women and £3,400 among men.
• These gaps in pension contributions widen significantly after women have children. Two years before the arrival of a first child, prospective fathers and mothers make, on average, fairly similar contributions to their pension. However, six years after the birth of the first child, average contributions made by fathers are more than twice the average contributions made by mothers. Much of this gap is driven by differences in employment rates, hours worked and hourly wages that open up at this point.
• Overall, there is little difference in the pension participation of men and women in paid work. However, this reflects differing compositions of the male and female workforces. Among private sector employees, a higher share of men (83%) than women (78%) were saving in a workplace pension in 2019. But more women work in the public sector – where pension participation and contributions are higher – and more men are self-employed, where pension participation is very low.
• Among private sector employees, the gap between men’s and women’s pension participation is driven entirely by the fact that a higher share of women earn less than £10,000 per year and so do not have to be automatically enrolled into workplace pension saving by their employer.

Laurence O’Brien, Research Economist at IFS and an author of the report, said:

‘Reforms have led to the gap between men’s and women’s state pension incomes shrinking to almost nothing for the recently retired. But gaps in private pension income remain. A lower amount is put into women’s pensions each month than men’s, on average, driven almost entirely by differences in employment rates, hours worked and hourly wages. These differences have narrowed over time, which will eventually reduce the gender gap in pension incomes.

‘However, labour market gaps are still prevalent even among the youngest generations, and they open up especially after having children. As these generations will not retire for many decades, we can expect a gender gap in pension incomes to remain for a long time yet. Policymakers concerned with this gap should see it as part and parcel of labour market issues, as opposed to a completely distinct issue with private pensions themselves.'

Alex Beer, Welfare Programme Head at the Nuffield Foundation, said:

The UK pensions system relies heavily on private pension saving for providing living standards in retirement. This means that differences in labour market participation and earnings that lead to large and persistent inequalities in labour market outcomes between men and women, subsequently show up in the gender gap in pension incomes. Addressing the gender pensions gap therefore requires a multifaceted approach, with policies to tackle gender inequalities in the labour market at its core.

ENDS

Notes to Editor

1. The gender gap in pension saving by Jonathan Cribb, Heidi Karjalainen and Laurence O’Brien will be published at 00.01 on Wednesday 8th March 2023.This report is an output from a programme of research on ‘Pension saving over the lifecycle’ (WEL /FR-000000374) that is funded by the Nuffield Foundation. Co-funding from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (ES/T014334/1) is also gratefully acknowledged. We are grateful to Alex Beer, Carl Emmerson and Paul Johnson for useful comments, and to Rowena Crawford for discussion and advice on this work.

2. This work was produced using data from the Annual Survey of Hours and Earnings, provided by the Office for National Statistics (ONS) through the Secure Research Service. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates.
3. We also use data from Understanding Society (the UK Household Longitudinal Study). Understanding Society is an initiative funded by the Economic and Social Research Council and various government departments, with scientific leadership by the Institute for Social and Economic Research, University of Essex, and survey delivery by NatCen Social Research and Kantar Public. The research data are distributed by the UK Data Service. Data from the Family Resources Survey were made available by the Department for Work and Pensions, which bears no responsibility for the interpretation of the data in this report.