Closing the gender gap in pay and pensions for LGPS 

Matters associated with Diversity, Equity and Inclusion (DEI) are so important across both the corporate agenda and pension schemes. One of the key areas in the LGPS spotlight at the moment is the gender pension gap.

As evidenced in the reports commissioned by the Scheme Advisory Board (SAB) and referenced in the subsequent letters SAB have issued to the Treasury in May and to the new Minister of State in July, there exists a large gap in the pensions accrued by male and female members in the LGPS.

This is driven by a variety of factors such as pay equity, career equity, caregiving responsibilities, financial education and cultural biases. Indeed, for some employers participating in the LGPS, recent EU directives will require them to report on their pay structure and take action where gender pay gaps for similar categories of workers exceed 5%.

As we enter a new political era, the gender gap in pay and pensions is likely to be one of the key issues being tackled and working groups have already been established by SAB to look into this further. This briefing note sets out how we can support Funds/Employers in this area to begin to address this issue.

What are the key areas to focus on?

From a Fund perspective, Education and Communication are areas where the Fund can provide support to employers – and also members/employees. This will be of particular importance should regulatory changes emerge to provide greater understanding and more flexibility to members who have taken periods of authorised unpaid leave. To address an issue, employers first need to be aware the issue exists and Funds can help facilitate this potentially through the information they hold (e.g. membership splits, opt-outs, service breaks etc.) and the communications they issue. We’d also suggest consideration is given to including the subject on agendas at employer/member events.

For employers, a big driver of any gender pension gap will be pay and Fund membership. The direct areas of focus that can be considered include:

  • Policies & practices
    • Clarify your compensation and rewards philosophy
    • Create existing pay and career progression policies
    • Define total rewards compensation elements
  • Job architecture
    • Define consistent and transparent framework
    • Check for objective & gender-neutral job evaluation criteria
    • Ensure categories of workers are known to support equal pay practices
  • Workforce data
    • Prepare relevant employee data (i.e., pay, performance)
    • Ensure policies are embedded in your pay administration
    • Consider the impact of pensions and wider wealth aspects on pay disparities
  • Pay equity
    • Measure critical equal pay gaps (>5%) per category of worker that cannot be explained
    • Evaluate root causes of pay gaps and define remediation strategy to close critical gaps
    • Consider the implementation of living wages for employees
  • People & culture
    • Train managers to apply and communicate pay and career progression criteria
    • Prepare to shift to a more transparent culture
    • Introduce tailored financial education for different demographic groups i.e., gender or ethnicity

How Mercer can help

For those LGPS Funds in England and Wales, we will be looking to provide employers with additional gender related information as part of the 2025 actuarial valuation process to aid their understanding of the benefits accrued by their workforce (and we’ll be liaising with Funds/SAB on this in due course). We can also assist Funds with both member and employer communications (and events) that highlight the issue and promote the benefits of the Scheme and the member options available.

From an employer perspective, our specialist DEI teams can help employers with:

  • Implementing a Gender Pensions Gap Corporate Strategy
  • Reviewing of pay and grading structures with a focus on equal pay
  • Conducting pay equity and equal pay analysis
  • Gender, Ethnicity and Disability Pay Gaps and analysis to understand drivers of gaps – extending to pension analysis for those members currently in the Fund
  • Pay Transparency Roadmaps

If you’d like further details on how Mercer can support Funds/Employers in this area, or other areas associated with Diversity Equity and Inclusion then please contact us:

Authors
Lucy Brown

- UK DEI, Pay Equity and Pay Transparency Consulting Leader

Rebecca Dodd

- LGPS Governance Consultant

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