Factors such as inequalities in the labour market are driving significant differences in the average pension wealth between women and men, known as the gender pension gap. Employers can play a key role in narrowing this gap and supporting women’s financial future, while also delivering tax savings, cultivating a healthy and productive workforce, and driving a compelling recruitment proposition.
In this article, our experts examine the data, key causes, and the strategies that can help employers to make a lasting difference for women.
The scale of the gender pension gap
The gender pension gap is commonly defined as the disparity in the pension wealth accumulated by men and women, or the income received in retirement from that pension wealth.
Today, women in the UK retire with average pension pots of £69,000, compared to £205,000 for men, according to research (opens a new window) from NOW: Pensions – a gap of £135,000 in fund value. This means that for women to retire with the same amount as money as men, they would have to work for an extra 19 years more than men,
However, unlike the gender pay gap (opens a new window), there is no official measure of the gender pensions gap used for policy decisions. This lack of research makes it more important for employers to play an active role when it comes to tackling pension inequality. Understanding how the gap is driven by labour market inequalities can help to determine which strategies are likely to be effective.
The gap in pension wealth is not the only cause of disparities in retirement income between men and women. Beyond pensions, men over 55 have on average £209,000 saved in cash and other investments, compared to just £128,000 for women (opens a new window). Once again, this underlines the need for broader financial education and empowerment among women to narrow the gap. Here too, employers can have a crucial role to play.
Understanding the causes
There are many reasons why the gender pensions gap exists, a combination of ingrained social conventions and existing inequalities in the workplace. Chief among these is the ongoing gender pay gap (opens a new window), which stood at 13.1% in April 2024 in the UK. For women, this is equivalent to working nearly seven weeks unpaid over the last 12 months. Although progress is being made (the gap is falling, and it is already narrower among younger cohorts) much work remains to be done.
Other factors impacting the gap may be less obvious. Motherhood, for example, has a notable impact on the value of women’s retirement funds. Statutory maternity leave of nine months far exceeds the three weeks paternity leave available to men. During maternity leave, women’s salary is set at the level of statutory maternal pay, with significantly lower pension contributions as a result. This doesn’t include any period of unpaid leave, which studies show women are far more likely to take (opens a new window) – even when they earn more.
Women are also more likely to engage in part-time work, with child-rearing responsibilities a factor once again. They are also over-represented in lower-paying industries (opens a new window) (such as retail or hospitality), and underrepresented in leadership roles. Unpaid caring, lone parenting responsibilities, changes to the state pension age, and lower financial confidence (opens a new window) among women have all further contributed to the gender pension gap.
These issues are compounded by biological realities that see girls born in the UK to live to an average age of 90.0 years, (opens a new window) compared to 86.7 years for boys. Women therefore not only have to cope with a smaller pension pot; they must also make it stretch for longer.
Supporting women into retirement
Just as there is no single cause, neither is there a silver bullet when it comes to solving the gender pension gap. Supporting women into retirement requires cooperation between government, employers, and willingness on behalf of savers themselves. For employers, this means taking an active role when it comes to promoting pensions schemes and encouraging employee contributions.
Doing so is for the benefit of all. For employers, the advantages include:
Tax savings via salary sacrifice. Pension salary sacrifice (opens a new window) arrangements are agreements between employers and employees to reduce gross salary in exchange for receiving pension contributions tax-free. By using salary sacrifice, employees can benefit from lower income tax and National Insurance contributions (NICs). Employers also see savings in their NICs, which are currently due to rise in April 2025. As more employees use pension salary sacrifice, the size of the employer’s savings will increase.
A more productive workforce. Employees who suffer from poor financial wellbeing (opens a new window), including stress around their pension pot and retirement fund, are more likely to have lower productivity, poor mental health, and to be disengaged at work. By supporting women’s financial resilience, employers can cultivate a healthy and productive workforce.
Improved recruitment and retention. Offering a generous and competitive pension scheme can be a useful tool for employers competing for top talent. And with both men and women increasingly basing decisions on factors other than financial renumeration, being able to demonstrate support for women in the workplace and equality of opportunity can be a significant asset to an organisation.
Employers can close their gender pension gap by:
Working to understand their pension gap. At a basic level, employers should calculate their gender pay gap (a legal requirement (opens a new window) in the UK for those with 250+ employees). A deeper analysis may consider gender differences in part-time work splits, periods of caring absence, take up of pensions, and contribution rates. Actions to equalise the gap should be identified and reviewed annually.
Going beyond the statutory minimums. For instance, employers should consider paying employer pension contributions during maternity (and paternity) leave based on an employee’s standard salary, not their salary during leave. Other options include continuing employer pension contributions for any unpaid leave taken post-maternity, and during carer’s leave. Extending paternity leave, offering full-time equivalent employer pension contributions for part-time workers, and offering incentives for employees who opt-out of their pension schemes to continue or rejoin, can further help to narrow the pension gap.
Exploring alternative pension contribution structures. Employers may choose not to apply the £10,000 earning threshold for pension contributions, remove age-related restrictions for auto enrolment, or pay contributions from the first pound of employees’ earnings rather than above the lower earnings limit of £6,240. Alternatively, employers can contribute above their minimum requirement of 3%. Ensuring a minimum total (employer + employee) contribution of 12% could qualify employers to become an accredited Living Pension (opens a new window) Employer.
Making meaningful benefits and policy changes to support women in the workplace.Straightforward measures include pensions, maternity, paternity, and family leave, caring policies, and flexible working arrangements. These should be reviewed on an annual basis to ensure they adhere to best practice. Other measures include offering workplace menopause cover, and ensuring menopause cover is included within private medical insurance plans. These benefits should be promoted internally and externally, with key policies (such as flexible working) role-modelled among senior leaders.
Raising awareness with employees. Issues to communicate may include: the value of employees’ pension contributions, impact of opting out, considerations for milestone events (such as accessing childcare support), divorce and including pensions within matrimonial assets, household financial planning, family pension contributions, flexible working, leave policies. Campaigns may take the form of events, webinars, or signposting to online tools. Employers should also work to understand any cultural differences towards savings and tailor communications accordingly.
Reach out to a member of our team for more information relating to the gender pensions gap, the gender pay gap, and how we can support employers to educate their employees.
Visit our People Solutions (opens a new window) page for further insights.
