The pension gender gap must be addressed
It is disappointing, if unsurprising, to read in research released by Scottish Widows that women’s pension savings have fallen relative to men’s in the last year. There is substantial evidence that women are already disadvantaged when it comes to pensions, but as the Fawcett Society have powerfully demonstrated, women’s finances have been squeezed from all directions as a result of the Coalition’s swingeing budget cuts. Persuading and supporting people to make long term savings is difficult at the best of times: when wages are stagnating, rents and childcare soaring, it’s going to be nearly impossible.
Scottish Widows found that only 42% of women, compared to 49% of men, are saving adequately for retirement. While the fall in savings generally is of concern, the research demonstrates women are being affected by the economic downturn more than men. 50% of women said they felt worse off than they did a year ago, compared to 45% of men. This has significant long-implications.
Behavioural economics suggests that people are susceptible to ‘hyperbolic discounting’: contrary to classical economic predictions, they do not necessarily value future spending at the same rate as current spending. So especially when times are difficult people will prioritise current spending over that in the distant, uncertain future. There is also evidence that women are more likely to use their income to plug gaps in family income, and prioritise the financial needs of their families over their own.
The report suggests that these factors may be contributing to the unequal rates of saving. While 35% of men were mainly saving for the long-term, only 28% of women were doing the same, with 40% of women saving for the short term. 31% of women were saving for a rainy day, and the report notes “many women consider their long-term savings as a pot to dip into to cover unexpected, or rainy day, costs not primarily as a fund to be ring-fenced and protected for the long-term in order to pay for their retirement.” This reflects the findings of my own research with carers, men and women, who when faced with the immediate and often urgent needs of their families, preferred to save in ways that enabled them to access their money to meet current needs over their own pension.
Pensions policy needs to reflect how people make decisions, and respect the fact that income insecurity and caring responsibilities may mean that it is rational, and unavoidable, to prioritise covering the mortgage, or the rent, or providing for your children. Labour took this on board and did a lot to protect women’s retirement prospects. They made it easier for women to build a pension in their own right, and boosted many older women’s incomes through the Pension Credit for example. Auto-enrolment is an important step forward in this regard. But as Greg McClymont points out, the Coalition has let down many low-paid women in its implementation.
As the Coalition considers its ‘minty green’ paper on the single tier state pension, the implications for the gender pension savings gap must take priority. Scottish Widow’s suggestion of partners sharing pension contributions to protect the savings of women not in employment is interesting, but we must take into account single parents, or those caring for spouses also unable to work. Eliminating inequality in pay and employment is essential, as is tackling financial illiteracy. Employers must be engaged in these efforts. Responsible capitalism must include ensuring that employees are able to provide for the long-term as well as the short, and this should be seriously considered in any discussion of ‘pre-distribution.’
We already know that women are already bearing the brunt of the Coalition’s austerity, and the growing pensions savings gap suggests that women will be feeling the effects of the government’s botched attempts at deficit reduction for decades to come. Pensions policy will only work if it takes seriously the way that people make plans about the future, and the financial pressures they face in the here-and-now. The consequences of ignoring this will be dire and expensive to rectify.