Should we encourage employers to split pension contributions 50/50 between couples? Steve Webb answers

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

For example, you can simply have employers create two pots, one for each partner, and then pay half of all contributions into each pot.

Of course there is a bit more administration and it creates more pots, but at least it tackles the inequality between men and women.

For example, my pension is four times as high as my wife’s pot.

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Steve Webb replies: We hear a lot about the ‘gender pay gap’, with larger employers now legally required to publish details of the gender pay gap in their workplace.

Your question relates to a different – ​​but related – gap, namely the ‘gender pension gap’. And this gap is very real.

The average woman reaches retirement with private pension assets around 35 per cent lower than her male counterpart, according to DWP figures published last year.

Although 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 significant and is now around the same level as in the years before. decade earlier.

There are many different factors that lead to retirement gaps between men and women, but here are some of the most important.

– The *wage gap* between men and women: The amount of your pension generally depends on how much you have earned and how long you have earned it.

Because women are paid less on average, they will also tend to build up smaller pensions.

– The ‘care provider fine’: The majority of unpaid care in Britain, both for children and the older generation, is provided by women.

This is often at the expense of jobs or careers. Although the state pension system provides ‘credits’ during periods of caregiving, it can be difficult to keep a private pension going if you are not earning or are earning at a lower level due to caring responsibilities.

– Gaps in automatic enrollment: While auto-enrolment has been a great initiative, giving millions of men and women a pension for the first time, it does not cover the entire workforce.

In particular, those earning less than £10,000 a year from a single job, or those in multiple low-paid jobs, could be missing out, and women are over-represented in these groups.

– Relationship breakdown: When a couple divorces and assets are divided, pensions are often overlooked or undervalued.

If one member of a couple (usually a man) has accrued much greater pension rights than the other, and nothing is done to level the playing field in the event of a divorce, this can leave the spouse with poor pension prospects when he retires.

You can read more about each of these issues in an article I co-authored last year on this topic: The gender pension gap: 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 of men and women to caring responsibilities, although it could take decades for this to translate into better pension outcomes for women.

You have made a creative suggestion, namely that where an employee is part of a married couple, the employer could provide an equal pension for each partner.

An advantage of your idea is that both parties accrue equal pension rights and this reduces the chance of unfairness in the event of a divorce.

However, there are some important practical problems with this idea.

I suspect employers wouldn’t like the idea of ​​having to pay pension contributions for people who don’t even work for them.

While the total costs may be the same, there would be a significant administrative burden in establishing the details of the other person receiving the contributions, and in keeping that information up to date as relationships are formed or broken.

Some employers would also likely have to split the pension contributions they currently pay for lower-paid women, so that half can go to a better-paid spouse or partner.

If this were an ‘opt-in’ scheme, it’s possible that many people wouldn’t be concerned as they could find easier ways to get their finances in order if they wanted to.

An example would be that in a couple concerned about this issue, the higher earner could simply contribute directly to the lower earner’s pension, without the need for the employer to be involved.

However, careful consideration should be given to the tax implications of this, both now and after retirement.

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

We know that many people do not pay enough into their pension and that a short-term job can yield a relatively small pot.

If your suggestion were adopted, each job spell would now yield two pots, some of which would be very small indeed.

I appreciate your creative thinking and it is essential that this issue receives more attention.

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