Should we get employers to split pension contributions 50/50 between couples? Steve Webb responds

There must be a simple way to divide pension contributions between partners.

For example, you could simply have employers create two funds, one for each partner, and then pay half of all contributions to each fund.

Sure there is a little more administration and more pots created, but at least it addresses the inequality between men and women.

For example, my pension is four times larger than my wife’s.

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE HIS PENSION QUESTION

Steve Webb responds: We hear a lot about the “gender pay gap”, and large employers are now legally required to publish details of the pay gap between men and women in their workplace.

Your question refers to a different, but related, gap, namely the ‘pensions gender gap’. And this gap is very real.

the average woman reaches retirement with wealth from private pension around 35 per cent less than her male counterpart, according to DWP figures published last year.

While the gender gap in *state* pensions is closing every year, mainly due to the introduction of the new state pension, the gap in *private* pensions between men and women is substantial and is currently at around the same level than before. decade before.

There are many different factors that lead to differences in pensions between men and women, but these are some of the main ones.

– The gender *salary* gap: The amount of your pension generally depends on how much you earned and how long you earned it.

As women earn less on average, they will also tend to accumulate smaller pensions.

– The ‘caregiver’s penalty’: Most unpaid care in the UK, whether for children or the elderly, is provided by women.

Often this can be at the expense of jobs or careers. While the state pension system provides ‘credits’ during care periods, it can be difficult to maintain a private pension if it is not earned or if it is earned at a reduced level due to caring responsibilities.

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– Gaps in automatic enrollment: Although automatic enrollment has been a great initiative, allowing millions of men and women to receive pensions for the first time, it does not cover the entire workforce.

In particular, those earning less than £10,000 a year with a single job, or those with multiple low-paid jobs, may be excluded, and women are overrepresented in these groups.

– Breakup of the relationship: When a couple divorces and assets are shared, pensions can often be overlooked or undervalued.

Where one member of a couple (usually a man) has accrued much greater pension rights than the other, and nothing is done to level things up in the event of a divorce, this can leave the spouse with poor pension prospects when they retire.

You can read more about each of these topics in an article I co-authored on this topic last year: The gender gap in pensions: How did we get here and where are we going?

In terms of solutions, there is no doubt that greater equality in the labor market would help, as would a more equal contribution between men and women to caring responsibilities, although this could take decades to translate into better retirement outcomes for women. women.

You have raised a creative suggestion: when an employee is part of a couple, the employer could pay an equal pension for each member of the couple.

An advantage of their idea is that both parties would accumulate equal pension rights and this would reduce the potential for unfairness in the event of a divorce.

However, this idea raises some important practical problems.

I suspect employers wouldn’t be keen on the idea of ​​having to make contributions to the pensions of people who don’t even work for them.

Although the total cost might be the same, there would be a considerable administrative burden in establishing the details of the other person who will receive the contributions, as well as keeping that information up to date as relationships are formed or broken.

Presumably some employers would also find themselves splitting the pension contributions they currently make to lower-paid women, so that half could go to a better-paid spouse or partner.

If this were an “opt-in” plan, many people might not bother, as they can find easier ways to balance their finances if they want.

An example would be that in a couple concerned about this issue, the one who earns more could simply directly pay the pension of the one who earns less without having to involve the employer.

However, you should think carefully about the tax implications of doing this, both now and in retirement.

There is also the challenge that this idea could make the problem of small pension funds even worse.

We know that many people are not contributing enough to their pension and that a short period of work can result in a relatively small fund.

If his suggestion were adopted, each work period would now generate two pots, some of which would be very small.

I appreciate your creative thinking and it is vital that this topic receives more attention.

While I have reservations about this specific idea, we certainly need to address these long-standing pension gaps as soon as possible.

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