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Money Tips

Mind the pension gender gap!

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Profile Pensions
Profile Pensions

Women are facing a huge pension gender gap, and unless something is done to tackle it, millions risk ending up with retirement incomes which are thousands of pounds lower a year than men.

Shocking new research reveals that the gap between men and women’s pensions is more than twice the gap between their average earnings.

Using data from the Family Resources Survey (FRS), a household survey conducted by the Department of Work and Pensions, the union Prospect has calculated that in 2016-17 the gender pension gap was 39.5%, or around £7,000.

It defines the gender pension gap as the percentage difference in average gross pension income (including state, work and personal pensions) for women, compared to the average gross pension income for men. The gender pay gap, or the difference between men and women’s average earnings, is estimated at 18.4% in 2017.

A growing body of evidence

There are plenty of studies which support Prospect’s findings.

Insurer Prudential’s ‘Class of 2018’ study, published earlier this year, found that women will have expected retirement incomes £4,900 lower than men. Men expect to retire on an average annual income of £21,800, compared to £16,900 for women. Worryingly, one in six women will retire with an income lower than £9,998, which social policy and research charity the Joseph Rowntree Foundation states should be the minimum income for a single pensioner.

Our own research also highlights the imbalance between how much men and women are saving for the future. We looked at all the pensions we’ve reviewed since May this year and found that women have an average pension pot value of £17,898, compared to £25,271 for men¹.

According to Scottish Widows’ latest retirement report, six in 10 young women aren’t saving enough for retirement, and a quarter aren’t putting anything aside at all. That’s one in four women who might end up with nothing but the State Pension in retirement.

In contrast, less than one in five men aren’t saving for retirement.

What’s behind the pension gender gap?

There are several reasons why women are falling so far behind men with their retirement savings.

The fact men often earn more than women is one of the biggest factors, as the amount we save through workplace pensions and our employers’ contributions is usually directly linked to our incomes.

Women also often take time out of the work place to bring up children, or to care for elderly relatives, impacting on the amount they can put away for the future.

Another reason is that many women work part-time, and their incomes are below the £10,000 threshold at which point they must be automatically enrolled into a workplace pension.

What women can do about it

Many commentators argue that we need government intervention to help close the pension gender gap. This could include, for example, scrapping the auto-enrolment minimum so that part-time workers don’t miss out.

But there are also things women can do to help boost their retirement savings. Here are our top three tips.

Are you able to boost your monthly contributions?

Look at ways you might be able to pay a bit more into your pension every month. A good way to do this is to sit down with your bank statement and see if there is any non-essential spending you can cut back on, so these savings can be redirected into your pension. It doesn’t have to be a big amount – even cutting out that coffee on the way to work could save you around £50 a month if you’re buying one every day. The new redirected pension savings can always be paused or cancelled if needs be.

Think about registering for child benefit even if you don’t qualify for it.

Under child benefit rules, families where one parent earns over £50,000 have their benefit reduced gradually until their income reaches £60,000, at which point the benefit is lost completely. Even if you will have to pay back some or all of your child benefit in extra income tax if you or your partner earns more than the £50,000 threshold, it’s still worth registering for it. Registering means you’ll get the National Insurance credits that help you qualify for a state pension. You usually need to have 10 qualifying years on your National Insurance record to get any State Pension, and 35 qualifying years to get the full State Pension.

Make sure your current pensions are working as hard as they possibly can for you.

Not all pensions are the same, so there’s a chance you might be able to find a better one. You could, for example, find one with lower charges, or a better range of funds to invest in. Make sure you seek professional advice if you’re not sure whether to switch your pension and remember that you may not always be able to improve on what you’ve got.

Unsure whether your pensions are working as hard as you are? Contact us today.

¹ 3,864 individual pension pots from new prospect customers we analysed between 1st May and 31st Oct 2018