The shocking gender pensions gap impacting women

What’s the gender pensions gap?

A pension remains the most tax-efficient way to save and provide an income for later life.

The gender pensions gap is the percentage difference in pension income for women compared to men, once they reach pensionable age. By the age of 60, the average woman’s pension is £51,100 compared to the average man’s pension being £156,500. That’s over a £100,000 gap, according to research from Now Pensions.

A 2018 study by Prospect showed that women on average have £7,000 a year less pension than men – and the Office for National Statistics figures show that the majority of the poorest pensioners are women.

How does the gender pensions gap happen?

During their 20s, men and women have relatively the same size pension pot, assuming equal work hours, pay and employers’ contributions. The change begins to happen around people’s 30s-40s.

In the natural course of a woman’s life, one or more of these events often happen:

  • Having a child/children, resulting in taking maternity leave and career breaks;
  • Returning to work part time to facilitate childcare and to minimise the cost of full time childcare for the family, therefore earning less;
  • Returning after several years off to raise the children and not being able to get a job on the same level as before;
  • Having multiple jobs (so they can work flexibly) which may add up to a full time wage, but do not individually qualify for a workplace pension scheme;
  • Getting divorced, losing access to their spouse’s pension before reaching their own retirement;
  • Becoming a single parent, often with the majority of the childcare and/or bills;
  • Becoming a carer for a parent or relative – again becoming part time or taking a lower paid job to give flexible working;
  • Living longer than men statistically, so a woman’s pension needs to stretch further.

Although these events can also impact men, statistically it is the woman who changes her career and therefore her pension contributions, to prioritise the family, causing the gender pensions gap.

What can the Government do?

The gender pensions gap is not just about mothers.

Many in the industry have been lobbying for the Government to remove the £10,000 annual earning threshold. Only workers earning more than £10,000 per year and aged between 22 and State Pension age, will be automatically enrolled into a workplace pension by their employers. If a worker earns between £6,240 and £10,000, they won’t be automatically enrolled in, but can ask to join. If they earn less than £6,240 per year, they are not eligible to join the workplace scheme at all.

If the £10,000 barrier was eliminated, an additional 1.9 million extra people, many of whom are women, could be eligible for a workplace pension.

So, people in a part time role or on a low income may not be receiving the employer contributions a workplace pension brings – or even have a pension at all. Compounded over time and with associated interest, these contributions make a huge difference to a pension pot at retirement.

A change in social policy by the Government on pensions in this way could bring inclusion for those on lower wages. It would also minimise their need to support people in later life, whose workplace pensions are not sufficient to see them through their twilight years – perhaps enabling them to pay for care and reduce the number of women reducing their working hours to care for them. The change would certainly help to close the gender pensions gap.

What can employers do?

Be flexible

The COVID-19 lockdown has shown employers that flexible and at-home working is possible in many industries. If they continue to offer this to staff, it may enable many women to return to full time hours whilst still supporting their families. The 9-5 does not necessarily need to be done between the hours of 9-5 or in the office!

A return to full-time hours for women would increase their income and therefore their pension with a double-whammy: they’ll pay a larger contribution through a higher percentage from their full-time wage plus receive a percentage increase from their employer.

Encouragement and advice

Employers could encourage staff to save into their pension at an early age and to engage more with their workplace pension. They could also encourage women choosing to have children to meet with an Adviser before they begin maternity leave, to discuss how taking additional time off or a return on part time hours or a career break will impact on their pension. This would help to reduce the gender pensions gap.

Analysis from Now Pensions on the gender pensions gap suggests that for members earning an average salary, based on mean salaries derived from the Office for National Statistics (ONS), pension savings will grow to £50,514 for men and £40,332 for women over the next 40 years, assuming a 3% investment growth.

Yet if a five-year career break, taken between the ages of 28 and 33, is applied to this estimation, women’s retirement savings fall to £33,986.02; this is 33% less than the average amount saved by men.

What about the self-employed?

According to Statista there are around 4.8 million self-employed people in the UK in 2019, accounting for 15% of the UK workforce. 1.66 million of these are self-employed women. Yet just 31% of the self-employed are saving into a pension.

Many women choose self-employment after having children as an enabler to flexible working, which may not have been available in a previous career.

Those who are self-employed or directors of a limited company may be paying themselves a low salary and topping it up with dividends, or have a fluctuating salary. If they do not employ staff, they will not be required to set up a workplace pension scheme, meaning their own pension may be forgotten in the drive to meet business needs.

Self-employed people can pay into a personal pension and gain tax advantages, but this contribution is an amount of their choosing instead of a set percentage of a wage. It is often what is left after business costs, rather than being a calculated amount to meet a target for their future needs.

Speak to a Financial Adviser about the most tax effective way of paying into a pension as a business owner.

What can women (and men) do?

The employed

Find out about your company’s maternity, paternity and shared parental leave policies. If the woman is eligible to receive maternity pay during her leave, she will also continue receiving regular pension contributions from your employer. She must however, remain in the workplace pension scheme, continue with payments and not opt-out during this time.

Be more engaged

Gen up on your pension! Download your pension’s app or check their website every month or so. Find out what your pension/s are worth. Make a plan with a Financial Adviser so you know the figure you are aiming for in retirement. Remember, that investments can go down as well as up. A pension is a long-term strategy and fluctuations in the economy and your investments are to be expected.

Marriage dissolution

If you are considering, or have had, a separation or divorce, it is worth consulting a Financial Adviser to see how your pension and other finances have been impacted so you can plan for your new future.

The pension arrangements of one, or both parties, can be one of the largest financial assets of a marriage and are taken into account as part of any financial divorce settlement or the dissolving of a civil partnership.

On divorce, it is important to understand that there are no ‘automatic’ benefits or entitlements to pension sharing, so don’t assume pension values will be split in half.

State Pension Forecast

The gov.uk website can give tell you what your state pension will be and explain your National Insurance contributions.

Take control of your pension and future with retirement modelling

Ask a Financial Adviser to review what you are paying in to your pension and compare to what it is it likely to be worth in retirement and how much income it will provide. Many people pay a token amount in without any idea of how much they want to or need to end up with, to get a decent standard of living and pay for all the things they are planning for retirement.

Also read: Pension Glossary – learn the lingo


If you would like a consultation with one of our Independent Financial Advisers about your pension, retirement plans or your general finances, please contact us by email: info@innesreid.co.uk or on our normal number: 01244 347 583 during office hours.

First consultations are free and appointments can be made outside of working hours, face to face or over zoom.

 

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