International Equal Pay Day and the pensions problem

• International Equal Pay Day is organised by the UN on 18 September each year, to draw attention to the gender pay gap
• In the UK, women working full time are on average paid 6.9% less than their male counterparts
• The gender pay gap is larger when comparing high-paid women with high paid men − in the 90^th centile it’s 15.2%
• The gender pay gap for full-time employees aged 22-29 is 0.9%, by 30-39 it’s 3.9%, by age 40-49 it’s 9.1%, by 50-59 it’s 12.5% and among those aged 60 and over it’s 12.6%
• The gender pay gap translates to a 48% pension gap
• AJ Bell Money Matters research shows that the gender pension gap begins at age 28

Sarah Coles, head of personal finance at AJ Bell, comments:

“Equal Pay Day has become a regular fixture in the calendar because while the gender pay gap is closing, it’s doing so at a snail’s pace, and men are still paid an average of 6.9% more than women. Among older people and more senior employees, the gap is even wider, and the impact on pensions means lots of women are left with a shortfall in retirement too.

“The older people get, the bigger the gap becomes. Among those aged 60 and over the gap in median average pay is 12.6% between men and women. It opens up particularly significantly between our 30s and 40s, which owes a great deal to the fact that some women will have children around this point, and may work fewer hours or take a career break for a period. Others will continue working, but make career compromises if they manage the lion’s share of caring responsibilities. It means many women miss out on pay rises and promotions during these vital decades, so their male counterparts race away. 

“These career compromises mean that when you look at more senior and well-paid employees, there are far more men in this group than women. This has a big knock on impact on the pay gap. The 90^th centile of female earners get an eye-watering 15.2% less than the 90^th centile among men.

“And that’s not the worst of it, because all this feeds into a massive gender pensions gap of 48% - so the income gap could be even bigger in retirement. This is a logical consequence of women earning less throughout their lives. Taking a career break and missing out on pension saving for a year or two can make a big difference. Once they return to work, even if they put the same percentage of their salary away as men, because it’s a percentage of a smaller sum, women will automatically have lower contributions and far smaller average pensions. Many of them can’t stretch to the same percentage payments either, because they’re having to make a smaller income stretch further.

“AJ Bell Money Matters research shows that the gap opens up at the age of 28. Women’s incomes are slightly lower than men’s incomes on average at this age, but many women will also be aware that this gap is likely to grow significantly in the coming years, when lots of them take career breaks or work fewer hours to have children or to care for family, so they put other spending first. Only 8% of women say their pension is a priority at the age of 28.

“By contrast, men aren’t earning dramatically more at the age of 28, but they’re less likely to become the primary carer if they start a family, meaning fewer career sacrifices.

“This helps explain why 22% of men at this age say their pension is a key priority, compared to only 8% of women who say their pension is a priority at the age of 28.

“The AJ Bell Money Matters research shows that pension priorities catch up by the age of 41. Unfortunately, women have paused contributions or made lower contributions in the key years when building a pension is so important, so there’s significant ground to make up.

“For any woman in this position, it’s never too late to make a difference. At age 41, by paying £100 extra a month into your pension, you could build an extra pot worth £42,500 after 20 years. That increases to over £66,700 if the payments continued until age 67. This £100 a month would cost a basic rate taxpayer just £80 a month, with £20 added on top by the government in pension tax relief, and costs even less for those who pay tax at a higher rate*.”

*Assumes your pension pot grows by 6% each year and includes annual charges of 0.6% and all dealing charges.