Home Feminism Women's Pensions Should Be Lower Than Men's - They Earn Less

Women’s Pensions Should Be Lower Than Men’s – They Earn Less

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For International Women’s Day the pension fund Scottish Widows tells us that there’s a horrible £100,000 gap between gendered pensions pots. Something must, therefore, be done. Well, the obvious intimation is that women should save more so as to gain higher pensions. Which would suit a pensions company, obviously.

It’s also total claptrap. Women’s pensions should be lower than men’s because they earn less:

Young women would have to work nearly 40 years longer than men to build up the same retirement pot, according to a report highlighting the pensions gender gap.

The average woman in her 20s can expect to have £100,000 less in her pension pot than a man of the same age as a result of earning less, working part-time, and taking time out of paid employment to care for family members.

This is righteous and just:

While 56% of men in their 20s are saving the recommended minimum of 12% of their income, among women the figure is 46%.

When typical working patterns of time off to have children and some years spent in part-time work are factored in, the company said a woman starting saving at 25 could expect to have £100,000 less in her pension pot by her retirement at age 68 than a man of the same age.

This is how it should be. To think it should be otherwise is to fail to understand the point of a pension at all.

We all have some amount of money that we earn over our lifetimes. We don;t actually know how much that is, not looking forward but still, it is indeed so. The pensions problem is that the earning lasts a little less long than the lifetime. We thus wish to smooth the earnings from those working years over all of the life years. This is the lifetime earnings hypothesis and it’s one of those things that is obviously true.

Trying to smooth our earnings over those perhaps 60 years when we work only for 40 of them (starting at, roughly, age 20) means that we have to make an allocation. How much do we enjoy as consumption now and how much do we save for that retirement?

Someone on £30,000 a year who saved £29,000 a year for that pension pot would be insane. Someone who saved £2,000 a year of a £250,000 income is going to be silly. How much you save in any one year depends upon your income in one year, that we all grasp.

But trying to smooth incomes means that it’s entirely possible to save too much. To delay too much consumption from youth to old age. In order to maximise their consumption over time those who earn less should save less and should have smaller pension pots and smaller pensions.

So, women do earn less, on average, than men. Therefore women’s pensions pots, women’s pensions, should be smaller than those of men.

This is before we even start to think of relative lifespans, how much an annuity will be as a result, time taken off to do other things and all that. If you earn less you should righteously be looking for a smaller pension pot. Failing to grasp that means being ignorant of the entire point under discussion.

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8 COMMENTS

  1. Seems to ignore completely the fact that many women will combine their pension savings with their hubbys. One of the reasons they take time off from work to care for family, it’s a team effort.

  2. “The average woman in her 20s can expect to have £100,000 less in her pension pot than a man of the same age as a result of earning less, working part-time, and taking time out of paid employment to care for family members.”

    So don’t work part time and don’t take time out of paid employment! Seriously, the answer is right there!

  3. “So, women do earn less, on average, than men. Therefore women’s pensions pots, women’s pensions, should be smaller than those of men.”

    There’s no “should” about it. It’s just plain mathematics, pure and simple, no “should” no “must” no “ought”. Just *is*. The amount you can save from £100,000 is going to be less than you can save from £1,000,000. Shock horror, that’s just sums, plain and simple. No patriarchy, no sexism, no chauvanism, just plain simple sums.

  4. This is a philosophical question: should pensions be simply a guaranteed income for those too old to work effectively to keep them above the breadline? or should they be a form of deferred remuneration? or should they be a mixture of the two? or should they be a means of minimising tax paid by higher earners? or a way for the politicians in control to divert money to their supporters/paymasters?
    The UK pensions regulations are a mish-mash, with even – no:especially – the state pension being a combination of four of the five.
    Tim, you are looking only at *occupational pensions* (including therein the self-employed) that bear some relationship to earnings and/or savings. A lot of people, including most female MPs, think that pensions do not need to have any relationship with the amount that a woman saves towards them.
    BTW my personal opinion is that option 1 is the most important function of pensions, with option 2 being secondary. The tax break granted to occupational and private pensions because they ensured that the individual would not become a burden on the rates when he/she ceased to earn is now obsolete as no-one in the UK is destitute other than through their own stupidity or government action [the latter more often than the former from what I hear and read].

  5. The state pension is perhaps the greatest return on investment it’s possible to have. You can invest £0 in it and get c£8.5k a year for maybe 30 years. Index linked. Those more knowledgeable than me can say how much of a private pension pot you’d need to get that.

  6. “how much of a private pension pot you’d need to get that.”
    From personal experience. My pension from ten years work in a university, paid since age 60, is somewhat less than the state pension, but nonetheless appears to have an annuity rate of 4-5%, by contrast my small personal pension pot with an annuity rate less than half that, is hardly worth claiming until I am destitute.

  7. Digging out an old programming excercise tells me that to get £8500 per year every year for 30 years, that is £255,000, with 4.5% interest, you need a pot of just under £140,000 at the start. To get that pot of £140,000 you need to put £4666 in every year over 30 years.

    No account taken of inflation or changes in real prices, or accumulation during the paying-in bit. But “that state pension? that’s 150 grand assets that is” is ballpark. Additionally, in essense your salary is actually almost 5K more than what goes into your pocket – and that’s before factoring in the free-at-use healthcare on top of that. Ballpark, people’s wages are probably 10K more than what they get in folding readies. Gimmie five grand every year and let me out of the state pension scheme.

  8. I will also add— claiming the state pension can be deferred “Your State Pension increases by the equivalent of 1% for every 9 weeks you defer. This works out as just under 5.8% for every 52 weeks.”

    So by putting off claiming for a year get an extra £530 for life at a cost of ~£9,000 this year. Which is a rather better return than I can get from leaving that £9,000 in the bank. And life expectancy at my age is +18 years so I should get my money back.

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