Elvis’ Caught in a Trap lyric from his famous Suspicious Minds melody is an ear worm that has been on repeat in my head as I have been thinking about the financial double whammy that face many women today.

The double whammy is this: we are more likely to live longer than men, but we almost all have less money to live on.

Gender Pension Gap is widening

A trap is hidden, it catches you out and once caught it is hard to escape – that is the reality of pension savings for too many women right now. The gender pension gap, estimated to be between 34.2% and 40.5% in the UK¹, over twice the earnings gap². And when you get to retirement it is too late to do anything about it.

Differences in pay is a significant contributor to this as lower income will often mean lower pensions contributions. However, there are a number of other factors at play which hinder women’s ability save that need to be highlighted and addressed.

Without reforms in this area, we will see an increase in pensioner poverty and a widening of the gender pensions gap. This is hugely concerning as our population grows older.

How can we avoid this trap?

Identifying the driving forces behind the gender pension gap is something I have explored with my colleagues at Phoenix Insights over the last year. In partnership with the Institute for Employment Studies, we analysed women’s finances through the lens of the workplace to reveal the severity of the issue. This has allowed us to outline a set of recommendations that, if implemented, we believe will go a long way to building women’s ability to avoid the trap.

We discovered that a lack of support and information for women at key life stages is affecting their ability to remain in work. A third of women (32%) have reduced their hours for an extended period of time³, and this could be for many reasons ranging from parental leave, other care responsibilities to menopause. I want people to care, and to be able to take time out if they need to – but as a society - as individuals, we also need people to be able to stay in, and return to, the workplace. Crucially, if someone does choose to reduce hours then they must be supported in understanding the long-term financial impact this may have. 

Government and employers have a vital role to play

Time out of work and time out of a workplace pension is difficult to claw back, particularly as you miss out on the benefits of long-term growth from valuable lost employer contributions.

Employers and the government have a vital role to offer additional support for women during these life stages. Let’s take care as an example. We know women are more likely to take on caring responsibilities, but limited access to affordable child and social care is placing constraints on women’s ability to work.

There are 3 key things I’d like employers, and government to act on:

1. Make flexible work the norm from day one so that we can all enjoy the benefits of flexible work and we normalise it across genders
2. Ensure working carers have up to 10-days paid leave
3. Ensure that whenever someone changes their working pattern they are given clear support and guidance to understand the financial impact and options.

In this way, we can reduce the size of the trap.

Official pension policy is also an area of concern when looking at gender differences. While auto-enrolment has been successful in closing some of the gap in pension participation, this hasn’t been followed by a similar contraction in the pension contribution rates of women compared to men. By middle age, men are paying almost £80 more per month into their pension than women.

The gender pay gap is a significant reason for this but current legislation is also playing its part. Women are substantially more likely than men to earn below the £10,000 threshold for automatic enrolment, so are being disproportionately excluded from the benefits of workplace pension saving.

Recommended government reforms

Reforms are needed to lower the age of auto-enrolment threshold to 18 and enable contributions to be paid from the first pound earned. This has been widely called for and proposed in a government review of auto enrolment in 2017. But as yet, there hasn’t been any significant progress on these changes.

The cost-of-living crisis has brought savings adequacy into sharp focus, and without additional support and information for women at key points in their life, their ability to build towards their retirement goals will suffer.

Returning to the Elvis song playing out in my head, following ‘we’re caught in a trap’ are the lyrics ‘I can’t walk out’. But when it comes to your finances, I want women to have the ability to escape the trap by taking control of their working lives and saving in a way that works for them. In doing so, they will be in a better place to secure their financial futures.

If we do see meaningful change from the government and employers to reform current policies, then we should see benefits at every level – for government, employers and for all of us.

Find out more on Phoenix Insights’ key findings and recommendations from its research on the gender pension gap: