Interactive Investor

Gender pension gap forms around the age women have first child

1st March 2022 11:09

Rebecca O'Connor from interactive investor

Data published today reveals the shocking extent of the gender pension gap and how it progresses throughout women’s lives. 

  • The gender pension gap appears when women are between ages 25 and 34 - around the time those who become mothers typically have their first child (age 29)
  • The gap grows from women having 9% less in their pensions in the 25 to 34-year old age group compared to men, to 46% less than men by the time they reach age 55
  • Less than 1% (0.74%) of ii customers who are women have a SIPP worth more than £1 million, compared with 2.78% of SIPP customers who are men. This suggests the Lifetime Allowance of £1.073 million is currently a male-only concern.

Data published today reveals the shocking extent of the gender pension gap and how it progresses throughout women’s lives. Women customers of interactive investor start out in their twenties with, on average, 5% more in their pension pots than men. By the time they reach age 55, the average value of their pension pots is 46% lower.

Women’s pensions start to fall behind men’s in the 25 to 34-year old age bracket – around the age that many women have their first child, at an average age of 29.  In contrast, becoming a father, which typically happens at age 33 for men, does not seem to slow down the growth rate in pension values.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “The gender pension gap could be renamed the mothers’ pension gap.

“Evidence from interactive investor pension customers shows the gender pension gap doesn’t exist until the mid to late twenties age group. It’s no coincidence that this is the time that women tend to have their first child.

“The gap then becomes a chasm through the thirties age bracket and never recovers, with the growth in men’s pensions consistently outpacing the growth in the value of women’s pots.

“Women typically have just over half the pension pot value of men by the time they reach their mid-fifties – the point at which it becomes possible to access pension savings for the first time.”

The data reveals the big growth years for men’s pensions are their thirties and forties, when the value of the average pot roughly doubles with each decade. Women’s pensions on average grow by 64% between their mid-twenties and their mid-thirties and 65% between their mid-thirties and mid-forties. The rate of growth then slows to 32% between a woman’s mid-forties and mid-fifties. For men, the rate of growth slows between the mid-forties and mid-fifties to 50%, but still outpaces the typical increase in women’s pension values.

The data also reveals that the Lifetime Allowance limit of £1.073 million is far less likely to trouble women than men.

Comparison of SIPP balance for men and women at different ages:

AGE

GENDER

AVERAGE PENSION VALUE£

% GAP BY AGE BAND

18 – 24

F

47,653

+5%

18 – 24

M

45,091

25 – 34

F

41,622

-9%

25 – 34

M

45,336

35 – 44

F

68,308

-26%

35 – 44

M

92,918

45 – 54

F

113,242

-38%

45 – 54

M

183,016

55 – 64

F

149,070

-46%

55 – 64

M

273,817

65+

F

158,821

-46%

65+

M

293,353

% of women SIPP customers versus % of men with balances over £1mn:

 

Gender

% of SIPP customers with balances over £1mn

F

0.74

M

2.78

Becky O’Connor says: “Less than 1% of women have pension balances worth more than £1 million, compared with closer to 3% of men.

“The Lifetime Allowance limit for pensions of £1.073 million is a major cause of annoyance among pension investors who feel their investment growth is being unfairly penalised. In reality, it is yet to affect many people and hardly any women at all.”

Why does taking time out to raise children affect mothers more than fathers?

“Women contribute less to pensions when they take time out of work to have children. Pay can also suffer around this time and then often, mothers do not manage to claw back the missing pension contribution years and pay growth, even when their children are older.

“It tends to be mothers rather than fathers whose pay and pensions are affected by having children because maternity leave pay is generally more generous than paternity leave pay, even though couples can share leave during the first year of a child’s life.

“As a result, it rarely makes sense financial sense for a father to take substantial paternity leave, unless his employer offers an unusually generous paternity pay scheme or the mother is so well paid that the father’s low paternity pay can be absorbed.

“Once a woman has taken time out of work and pension contributions, the damage is done and it can be hard to reverse it. What is more likely to happen is that the pattern repeats. When it comes to subsequent children, it then makes sense again for the mother to take more time out, compounding the problem.

“Later on, it’s hard to return to full time work and look after children even when they are in school. So one partner often works part time and because by this point the mother is earning less through having taken time out already, it usually makes sense for her to continue part time, compounding the problem again.

“Further into the future, caring for adult relatives might become necessary, so because women have already made sacrifices, they end up being the ones to make yet more.

“Equalising maternity and paternity pay would help in addressing this issue by giving couples genuine choice in how they organise working and childcare responsibilities in the early years.”

Interactive investor launched ‘Pension Builder’, a new low flat fee, standalone pension costing £12.99 a month this week. You can find out more at https://www.ii.co.uk/ii-accounts/sipp

Notes to editors

  • Average age of mothers and fathers, ONS data
  • Interactive investor customer data as at February 25th 2022

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