Late last year, 100,000 women in Iceland, including their Prime Minister, went on strike over gender inequality.
Not content with topping the World Economic Forum’s (WEF) global rankings on gender pay, this was a statement of intent; with an aim of reaching total parity by 2030. The United Kingdom comes in 15th on the WEF list, with a gender pay gap of 7.7% in 2023.
It is worth keeping in mind, particularly in light of Ethnicity Pay Gap Day which fell on Monday 8th January, that this gap widens for women of colour, who suffer a compound effect of both the gender pay gap and ethnicity pay gap, as highlighted in the long term ONS study released in late November.
This article is designed to bust some of the myths around pay disparity, in the context of the gender gap, and to inspire conversations about financial resilience, irrespective of gender or ethnicity. It refers to the gender gap given there is greater data and research available on the subject, as gender pay reporting – unlike ethnicity – has been mandatory since 2017.
Some 64% of Brits think the term refers to the practice of paying men and women differently for equal work, but this is a misconception. Unequal pay is illegal. The gender pay gap figure actually refers to the difference between the average hourly pay of women and men, expressed as a proportion of men’s average pay.
Concerns are sometimes raised about methodology, and the fairness of comparisons – the impact of part-time versus full-time working, for example, in a society where women make up the majority of part-time workers. To accommodate this, the official figures split out the median and mean gap for all workers and full-time workers separately – with the gap widening to 14.3% when capturing the former.
Despite its name, the gender pay gap isn’t something that only women need to be concerned about – the impact on our collective economy, and all of our individual finances, can be significant.
Moody’s have projected that closing the gap worldwide could add $7 trillion to the global economy – an attractive untapped opportunity when prevailing IMF forecasts are for slowing global growth in the years ahead.
With pension provision so intrinsically linked to earnings, it’s a foregone conclusion that there will be a gender pension gap. Where women earn less, they will have less going into their pension pot. That’s before we consider behavioural factors which may lead women to allocate more of their savings to lower risk assets such as cash (as I discussed in this previous article).
Relative longevity between men and women compounds this disparity; because women tend to live longer, that smaller pot has to go further. All of this means that women continue to be affected by their relatively lower pay even after they retire, with the gender pension gap currently 35% in the UK.
This isn’t a generational problem that will sort itself out as women grow up in a more egalitarian society. Even without taking a career break, for example, a study found that women aged 25 will still accumulate a 20% lower workplace pension at age 65 than their male counterparts - it rises to 33% if taking a five-year career break.
Such career breaks may not only be for motherhood. With an aging population overall, we now have the so-called “sandwich generation” where 1 in 7 women in their 40s are looking after both children and parents at the same time. And when people are looking after their children, or an older relative, they aren’t in paid work, whether that ends up being through a career break, part-time working, or flexible working. During the next 20 years, informal caring is expected to increase by as much as 40% - the impact on carers’ earnings cannot be underestimated, and the majority of carers in the UK are women.
The issues that propagate the gender pay gap are broader societal ones. The need to provide unmet care needs may fall predominantly on women’s shoulders, but plenty of men are still heavily involved or indeed the primary care giver in their circumstances. Equally, with shared parental leave and enhanced paternity leave gathering traction, this may equalise. While this may fix the gap on paper – it doesn’t fix the knock-on impact on pension savings. The gender gap therefore is a lens that enables us to see opportunities to improve financial resilience for those carrying out unpaid care as a whole.
In recent years, though perhaps not yet going far enough, we have mobilised around climate change as a society. We have collectively looked at what our world may look like in a few hundred years’ time, realised the value of our natural resources, and decided to take better care of them.
Perhaps it is time to do the same with our human resources.
At LGT Wealth Management we believe in the benefits of a diverse workforce and are proud of our inclusive culture. We publish our gender and ethnicity pay gaps as on step toward improving transparency with our stakeholders, while remaining aware there is more we can do. For more information please click here .
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