Clare Moffat, our pension expert, discusses the gender pension gap and the affect it can have on your retirement.
You’ve probably heard about the gender pay gap, but have you heard about the gender pension gap? In recent years, there’s been significant progress in reducing the gender pay gap and promoting gender equality in the workplace.
But when it comes to retirement planning and achieving financial security in retirement there hasn’t been as much progress.
What is the gender pension gap?
The gender pension gap is the difference between men and women’s pension wealth. This can be the difference in pension pots that men and women have at different points in life. It can also be the difference in the amount of annual income that men and women have in retirement.
Whichever measure we use, one thing is clear. Women retire with significantly lower pension savings than men. A survey by the Department for Work & Pensions found that the gap in private pensions is 35%.
This means that for every £100 a man has in pension savings, a woman will only have £65. As women tend to live longer than men and their pension savings need to last longer, this is a real concern.
Why does the gender pension gap exist?
There are several factors which contribute to the gender pension gap. One of these is the gender pay gap. This is the difference between the average hourly earnings for men and women. With women earning less, they contribute less and retire with smaller pensions.
Another common factor is that women tend to take longer career breaks or reduce their working hours. This could be to care for a child, look after a relative or due to menopause. This could have a big impact on a woman’s pension pot.
What should I consider when thinking about my pension?
Retirement can seem very far off if you’re in your twenties or thirties. There may be other financial considerations like renting or buying a home, university debt and increased bills. But the sooner you start paying into a pension the better.
When you pay into a pension, you receive tax relief from the government plus an employer contribution. This money is then invested. As with all investments, pension savings need time to grow. So the sooner you start saving, the less you’ll need to contribute each month to reach your retirement goals.
If you’re thinking about stopping or reducing your working hours, this will influence your pension savings and life in retirement. Having that knowledge means you can make a fully informed decision. If you increase your working hours at some point in the future, you might then prioritise paying in more.
Similarly, if you delay saving into a pension, you’ll have to save a lot more every month to reach the same amount in retirement. Understanding your finances and how your pension works early on in your career can help you feel better equipped to make good financial decisions.
Clare Moffat’s tips for women to build pension wealth
Have good conversations as a couple
If one person is taking time out of work or reducing their hours for caring commitments, then the partner who stays in work can make contributions to a partner’s pension. This recognises the caregiver’s contribution and ensures their own retirement fund is healthier.
This is also the case if one of you is looking to reduce your hours. It can be tempting to focus on salaries when deciding on who might work part-time. Consider all workplace benefits, including pension contributions, to allow for a fuller financial picture.
Prepare for maternity or adoption leave
Being on maternity or adoption leave means reduced pay, so money might be tighter. Employer contributions are based on your pay before maternity leave, but employee contributions are based on actual pay during maternity leave. Knowing this in advance could mean that it’s worth putting some extra money into pensions before the maternity leave starts.
Investigate flexible working arrangements
Check if your employer offers greater levels of flexibility in how, when and where their employees work. This will help to address issues of carers feeling less able to balance work and care giving.
Multiple jobs
It’s more common for women to work multiple part-time jobs. You must earn at least £10,000 to be auto-enrolled into an employer’s pension scheme. And this means that while your total earnings might be well above this, you may not be for each employment.
But you can ask to be auto-enrolled if you earn between £6,240 and £10,000. This means you can access valuable benefits which will help in the future. Bear in mind that you and your employer will need to pay in too.
Look at your workplace pension scheme
Make sure you join your employer’s pension scheme. Many employers offer salary exchange, also known as salary sacrifice. This is where you agree to exchange part of your salary and your employer pays all the pension contribution.
The benefit is that you pay less income tax and National Insurance. That’s because your salary is reduced before tax and National Insurance is taken off. Your employer also pays less employer National Insurance, and they might pass on some or all savings to you.
Many employers also offer attractive employer pension matching. This is where employers match the same percentage contribution as the employee up to a limit. Taking advantage of these incentives can dramatically increase the pension savings you retire with.
When you get a pay rise or a bonus
Another way of boosting your pension savings is to consider putting some, or all, of any pay rise or bonus into your pension.
State Pension
You don’t get the State Pension automatically. You need to have paid National Insurance or received credits to get it. You will receive National Insurance credits up until each child is 12 but not after that time. You also need 35 years of National Insurance contributions to get the full new State Pension amount.
Make sure you check your State Pension forecast, especially if you are over 50. If you have gaps because you haven’t paid National Insurance, you can only go back over the past six years to fill in any gaps.
As you get closer to retirement
It’s important to think about the kind of retirement that you want to have. Our retirement planner can help you see how much you’ll have and if you’re saving enough to meet your goal.
