It was supposed to be good news. Last week, the age at which women in the United Kingdom can begin receiving a state pension rose from 60 to 65, equaling that of men for the first time. But the change—set in motion years ago by a UK government seeking to shore up the country’s retirement system for future generations—isn’t the kind of gender equality that most women are seeking. Indeed, some women’s groups are howling about pushing back the retirement-benefits age a full five years.
The news, of course, is the latest reminder of an unfortunate fact: as unequal as gender pay can be during working years, they can be even worse for women when they retire.
Indeed, according to a World Economic Forum paper released this year, the so-called “gender pension gap” in the United States and Europe stands at 35% to 40%, compared to 15% to 20% for the pay gap. The WEF predicts that the gender pension gap is expected to grow in the coming decades for the world’s eighth-largest pension systems.
But while the challenge of reducing a gap this size may seem daunting, experts say the solution seems fairly straightforward: lower the pay gap between the genders and the pension gap will fall as well. “The fundamental issue to address is the pay gap, not the pension gap,” says Kyuman Lee, a Korn Ferry associate client partner and an expert in retirement benefits. “The differences in pay between men and women flow through to retirement benefits.”
Moreover, a Korn Ferry study of 20 million employees across the world released this week points out that there are really two different types of pay gaps. The first is the “pay equity” gap, which is the difference between what women and men make for doing the same job. According to Korn Ferry, women make 5% less than men for jobs at the same level.
The second gap presents the bigger hurdle—it’s the difference between the average pay for men and women throughout an organization. According to Korn Ferry, women make 16% less than men.
The reasons for this second pay gap are varied. Women are generally in lower-level jobs than men, and fewer women reach the upper ranks of companies, says Benjamin Frost, a London-based solution architect with Korn Ferry. In addition, women often take maternity leave early in their careers. “The compounded effects of a few ‘missing’ years of retirement contribution, 30 years later when you retire, leads to a big gap,” Frost adds.
There are myriad ways for companies to give their female employees a chance to narrow the pay gap. According to Peggy Hazard, an associate client partner at Korn Ferry and a leader of the firm’s Advancing Women practice, companies need to make sure that there’s an objective, gender-blind set of criteria for determining the level of bonuses and salary increases. And executives need to make “systemic and intentional efforts” to increase the percentage of women at senior levels. “To do that, they need to strengthen the pipeline of potential talent, identify candidates early, and then intentionally manage their career progress to be sure they get the right experiences, visibility, sponsorship, networks, feedback, etc.”
There are also other steps to consider. Frost, for example, thinks that retail companies in particular should auto-enroll employees in corporate retirement plans. Many retail workers—a large percentage of whom are women—will often not take advantage of such plans because they think the work is temporary in nature. But often the jobs morph into longer-duration positions.
“The UK just required all employers to register all employees by default, as part of the paperwork when taking on a new employee,” says Frost. “I am a big believer in the ‘nudge’ concept—that by setting defaults cleverly, you can improve things.”