There's more to the pay gap than just pay / by Fiona Mackenzie

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Today's gender pay gap day.  You can check your own pay gap here.

The pay gap between men and women is due in part to women being paid less for the same or comparable work, but also due to women shouldering the bulk of caring responsibilities mid-career. 

The Fawcett Society have some good, but alarming, figures on the slow rate of progress to achieving equal pay : if the pay gap between women and men continues to close at current rates, it will take 100 years before the gap reduces to 0%.

We shouldn't just try to fix the pay gap though: the EU found that pensions savings among women are 40% lower on average than men's - meaning that the long term picture for women is worse than just the pay gap statistics.

Impact of the pay gap, and career gaps on pension savings

Our pensions are linked to our pay

Workplace pensions are almost always based on employee's salaries, either:

For women, the impact of the pay gap will mean their pension contributions or entitlements are lower on average.  Career gaps, or taking part time work can mean that they miss out on employer contributions to their pension, even if they are able to save into a personal pension.
  • Defined Benefit pensions which offer an income in later life which is based on final or average salary,  with some contributions from the employee.  The pension scheme will make investment decisions.
  • Defined Contribution pensions where a proportion of employee's salary is saved into investments each month. Generally the employee makes the investment choices.

For women, the impact of the pay gap will mean their pension contributions or entitlements are lower on average.  Career gaps, or taking part time work can mean that they miss out on employer contributions to their pension, even if they are able to save into a personal pension.

The impact of the pay gap on investment attitudes.

Research by Mercer found that women are currently 67% more likely to choose investments which are "defensive" than men are: these funds have lower risk of the fund value going down, but generally give lower investment return in the long run.  With defined contribution schemes being more common, this increases the likelihood that women will have lower pension funds in later life.  

As well as noting the work financial education and engagement can do to overcome this behavioural tendency, Mercer propose that solving the pay gap could help too: if you're in lower paying or part time work, you may feel less keen to take risky investment decisions.

Further Reading

This EU study has some interesting policy suggestions to help reduce the pensions gap.

Friday font fact (nothing to do with finance): the MIND THE GAP on this post is written in a form of the Johnston typeface, developed by Edward Johnston in 1916 and used across the London transport network.