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.