By: Sophia Dimitriadis

Our recent Slipping between the cracks? report, published last week, found that Generation X (those born between 1965 and 1980) face significant challenges in reaching adequate retirement savings, if policymakers fail to respond urgently.

Our research found that 1 in 3 Gen Xers risk facing bleak retirement prospects; the majority of this generation want to save more but can’t; and many aren’t even aware of the financial hardship they could be heading for. But not all Gen Xers have been hit equally.

Female Gen Xers face particular challenges to saving for retirement – they are more likely to have no pension relative to Gen X men, with 1 in 6 Gen X women having no pension savings at all (12% vs. 16%). They’re also:

• more likely to say they would like to save more but struggle to do so (62% vs 52%).
• more worried about retirement (54% vs 46%).
• less likely to contribute at high rates into a pension over minimum rates of 5% (33% vs 42%).

In recognition of International Women’s Day, this blog will shine a spotlight on these challenges and the ways in which policymakers can address them to ensure that over half of the next generation of retirees are financially prepared for retirement.

The extra burden of care

So why are Gen X women more likely to struggle to save for retirement? The main reason is that they’re more likely to face affordability constraints than men (54% vs 46%) – potentially because of the extra burden of care they face and the impact this has on their ability to work and earn.

Female Gen Xers work fewer hours than men – they’re more than twice as likely to work part-time (22% vs. 9%) and 3.5 times as likely to have taken a career break (21% vs. 6%). It’s therefore no surprise that Gen X women are also almost twice as likely to have low incomes (<£15,000) than Gen X men (28% vs 15%), while the share of Gen Xers with low incomes is especially high among part-time workers and those who’ve taken a career-break (45% and 43%).

It’s clear this disparity in employment is hurting women’s retirement prospects. Gen X women in these latter two groups are particularly likely to report facing affordability barriers to saving for retirement and pay relatively low pension contributions.

But the key underlying factor behind this inequality in employment is differences in the provision of care:

• Gen X mothers are more than 3 times as likely to have taken a career break or work part-time than their male counterparts, and are more likely to have done so than the average Gen Xer.
• Women are also the main providers of care to adults among this age cohort – making up 3 in 5 Gen X carers. Gen X carers overall are less likely to work full-time (26% vs 34%) and more likely to be unemployed/not working (38% vs 28%) compared to non-carers.

Women’s greater burden of care, however, doesn’t only create financial barriers to saving for retirement, but also psychological constraints. While many Gen Xers say they feel too overwhelmed with current priorities to think about saving for retirement, this is particularly the case among those with caring responsibilities – with 38% of mothers of children under the age of 18 saying this compared to 29% of Gen Xers overall.

Gen X women are less likely to be eligible for auto-enrolment, which may explain why they’re more likely to have no pension savings

Women also disproportionately face challenges to saving for retirement because they’re more likely to miss out on the benefits of auto-enrolment as a result of their propensity to earn less than men. Women with incomes below the automatic enrolment (AE) threshold (of £10,000) may struggle to tackle the inertia to saving – the well-known phenomena that people aren’t proactive about saving as they aren’t auto-enrolled. This is evidenced by the fact they’re considerably more likely to have no pension savings than the average across all women (28% vs 16%).

Those with multiple part-time jobs, which each earn below the earnings threshold – the majority of this group are women – also miss out on AE, even if their combined incomes are above the threshold.

So… what can we do?

Given that the main barriers women face relate to the impact of their greater care responsibilities on their ability to work, making it easier for people to combine caring responsibilities with work will be key. In recognition of International Women’s Day and beyond, we at the ILC are calling on the government to step up to do this in a number of ways:

1. Require all employers to make all jobs flexible by default

Previous ILC research has shown that a lack of flexible work opportunities is a key factor in prompting people with adult or child care responsibilities to leave the workforce. Beyond this, greater flexibility is not only valued by those with caring responsibilities, but can also boost employee satisfaction more broadly and is significantly valued by employees.

While employees are currently able to make one flexible working application request a year according to the law, this is subject to a number of caveats, meaning that too many people who would benefit from flexible working arrangements fall out of the workforce. This not only costs individuals, but companies and the economy as a whole.

As we have seen first-hand during the pandemic, there is significant scope to change this. Employers have responded fast, demonstrating that many more roles can be worked flexibly. There is a significant opportunity to use this momentum to shift towards roles being “flexible by default” – i.e. offered on a flexible basis unless there is a strong reason not to – which would remove the current uncertainty around securing flexible working.

2. Introduce carers’ leave

Alongside this, another key enabler for carers to remain in work is giving carers access to paid carers’ leave. This is particularly urgent as Gen Xers’ caring demands will likely rise in the future as they have yet to hit their peak caring years and due to the fact the proportion of adults requiring care is projected to increase in the UK.

While it’s positive that the government is consulting on proposing a right to one week’s unpaid leave, as suggested by Carers UK, more needs to be done. As a starting point, carers’ leave should be paid; it would also be beneficial to increase the paid leave entitlement (over time) to 10 days, alongside a longer period of unpaid leave of up to six months.

3. Review the scope for creating a more level playing field in terms of financial support for carers who want to work, regardless of the age of the person for whom they care

Providing some financial support to workers with adult caring responsibilities to help pay for the care for someone else they would otherwise need to care for could also be hugely beneficial.

While some free childcare and tax-free childcare support is available to those with childcare responsibilities, no such financial support is available for working carers with adult care responsibilities, although this is available in some other countries.

4. Extend auto-enrolment to low earners by auto-enrolling employees earning below the AE threshold into a side-car savings scheme linked to a pension

We’ve also seen that expanding auto-enrolment to low earners could particularly help support more women to save into a pension, while our research findings indicate that allowing for an element of flexibility may be necessary to support people facing affordability constraints.

One such option could be to introduce a so-called side-car savings scheme, as proposed by NEST. Side-car schemes enable a saver to ensure they have built up sufficient emergency savings, and only when they have reached a target limit do any further contributions roll over into a pension. As such, auto-enrolling employees earning below the AE threshold into a side-car savings scheme could be an effective solution to boost the pension savings of low earners.

With the oldest Gen Xers retiring in just over a decade, policy makers will need to act fast to address the challenges that Gen Xers face to saving for retirement, and ensure that women, in particular, aren’t left behind.

Notes

The findings are ILC calculations based on nationally representative YouGov survey responses of 6035 UK adults aged 40-55 (collected online between 13 – 24 November 2020). Please note, the statistic of 1 in 3 Gen Xers being at significant risk of having inadequate incomes in later life is based on ILC’s own calculations. All references and methods are available in the full report.

The Slipping between the cracks: Retirement income prospects of Generation X report has been supported by Phoenix Group.