Is a new gender pension gap opening up in the Defined Contribution space?

New analysis of the gender pension gap 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.

DWP published its own figures on the gender pension gap in private pensions earlier this year. Whilst LCP welcomes the publication of the first official figures on the gender pension gap, it points out the limitations of the new official figures as state pensions are excluded, even though these provide more than half of the income in retirement of a typical woman.

LCP has now undertaken new projections which found that for new retirees, the gender gap on state pensions has closed dramatically and is set to disappear. It has received an FOI reply from DWP which shows the gap is down to 2% between men and women for those who retired last year. Full equality is expected to be attained during the 2030s because of the phased introduction of the new state pension which began in 2016.

In the private sector there is set to be a major reduction in the gap between men and women when it comes to Defined Benefit pensions – but only because men’s pensions are set to decline dramatically. Private sector DB pensions have in the past overwhelmingly been received by better paid men but as those schemes have been closing for the last couple of decades, men’s income from this source will start to decline sharply with each new group of retirees over the coming decades.

However, LCP has found a 'worrying' new gender pension gap opening up in the Defined Contribution space. It says that "in essence, all the inequalities we see in the labour market between men and women are now being replicated in DC pension outcomes which are (pretty much) based on a percentage of what people earned and how long they worked for".

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.

LCP's report also highlights potential new sources of inequalities, including the growing number of couples who cohabit and do not marry – whereas there are at least some provisions for pension sharing on divorce, there are none for pension sharing after cohabitation. This means that women in cohabiting relationships where a man has the lion’s share of the pensions could lose out heavily.

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 experience 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’, commented: “Inequalities in pension outcomes need not be a permanent feature of the pensions landscape. This research shows that progress is possibly 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.”