March 2024: We know about the Gender Pay Gap, but what about the Gender Pensions Gap?

To celebrate International Women’s Day this month, Jo Donnelly, Head of Pensions at the LGA, and Secretary to the Local Government Pension Scheme Advisory Board, introduces the ground breaking work being undertaken to understand the Gender Pensions Gap in Local Government – and what employers can do about it.

While women comprise around 74 per cent of employees within the Local Government Pension Scheme in England and Wales, they have lower mean pay and accrued pensions than men

Jo Donnelly

Quite a headline, isn’t it? Thankfully, due to mandatory reporting we now have more data on the gap between what men and women are paid in local government, but how familiar are we with thinking about how that impacts the gap in what they receive from their LGPS pension when they retire?

The Gender Pensions Gap is an issue that the Scheme Advisory Board (SAB) for the LGPS in England and Wales has been investigating for some time. With over 1.2 million local government workers saving for their future retirement by paying into the LGPS, the Gender Pensions Gap is critical to the future well-being of a lot of people – people who spend their working lives doing really important work for our local communities.

We know from LGA data that more women than men work in local government therefore it is unsurprising that LGPS membership too is 74 per cent female. So, if there is a gender pay gap it is almost certain that there will also be a gender pensions gap. This is because pay is one of the critical factors used to work out the pension paid to a local government employee when they retire. But is there anything more to learn from looking at the gender pensions gap?

Absolutely! The gender pay gap is only ever a snapshot in time while the pensions data shows you how pay changes over someone’s career history, and how disadvantage changes over time.

To date, the SAB has commissioned two reports from the Government Actuary’s Department (GAD) to assess how much current pensioners are receiving, but more importantly what is the pension pot that those working now are building up

We can’t do much about the pensions already in payment (where the average woman’s pension is only half the men’s), but the initial report from GAD identified a substantial difference between the average LGPS pension benefits currently being built up by male and female scheme members. The difference is 34.7 per cent for benefits in the reformed Career Average Revalued Earnings (CARE) scheme – which has been in place since 2014 – and 46.4 per cent for benefits in the legacy final salary scheme.

This does show promising signs that the gap has reduced over time, particularly with the introduction of the career average scheme, and potentially indicates some progress towards equality. But we can see the gap is still opening up between men and women for existing staff in their 30s and 40s – perhaps unsurprisingly the decades in which most people (but mainly women) take time away from work for childcare and other caring responsibilities. That will mean this pattern will repeat for decades to come – unless we do something about it now.

So we asked GAD to explore these gender gaps in more depth in a second report that focussed on:

  • career patterns – in particular, part-time working
  • differences relating to employers or categories of employers who participate in the LGPS, such as local authorities and schools
  • comparing the analysis with the LGA’s 2019 gender pay gap report.

As you’d expect, there wasn’t a simple answer! That’s because there is a complex interaction between the types of work women do, their career patterns, and the opportunity to progress their career after having taken on childcare, undertaking other caring responsibilities, or taking time out to deal with the impact of life events. The second report showed us, for example, that part-time working patterns are closely related to gender pension (and pay) gaps for LGPS members – but they don’t explain the whole picture.

I wanted to share these high-level findings from both reports, and I’d encourage you to take a look at the striking graphs in these reports to find out more. As I said, there isn’t a simple answer, but I also want to say, don’t despair!

Research by the Women’s Budget Group showed a jaw-dropping 73.5 per cent gap in private pension wealth between women and men, and the Pensions Policy Institute found that overall wealth inequality in later life is reduced because women are more likely to work in the public sector and still have access to a valuable defined benefit pension scheme (like the LGPS). So public sector pensions can be part of the solution.

We know that many local government employers are committed to and can have a crucial role in improving outcomes for women. That’s why we’d like to come together and share our thoughts with local government employers on each of our organisation’s roles in helping to address the inequality we found through these reports.

We believe that better alignment of gender pay and pension gap reporting would allow for greater transparency and a better understanding of both issues and hopefully consequently a further narrowing of the gap.

If you’re interested in finding out more, you can join us on our free webinar on 9 May 2024 to discuss how employers can close the gaps in women’s pay and pensions. Book here

The SAB has set up a dedicated working group consisting of representatives from LGPS funds, employee and employer representatives, as well as actuaries, to consider next steps. We’d welcome any further employer representatives who want to join the group – the team’s contact email address is below.

The working group has an action plan in place which is looking at possible changes that could be made to the LGPS that might help to reduce levels of inequality. Key to this is improving how funds and employers communicate with scheme members / their employees to ensure they understand the potential pension implications of career choices and manage their pension during life events which contribute to the gender pension gap.

More widely, we are considering what can be done in terms of reporting for all the public sector schemes, potentially working this into the four-yearly scheme valuation process.

So, there is plenty still to do – but we’ve made a few really important first steps on this journey! 

If you’d like to discuss how your organisation can input into further research on this issue, please do get in touch with my team by contacting [email protected]

Jo also invites you to attend a free webinar on 9 May 2024 to learn more about equality in pay and pensions. Link coming soon.