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An overview with Celeste Garib

How can you bridge the 35% gender pensions gap?

Celeste Garib, 12 July 2023

In 1970, the government introduced the Equal Pay Act, which promised to prohibit any discrimination about pay or working conditions based on gender.

Unfortunately, as the Guardian reports, there is still a significant gender pay gap of 9.4% in favour of men over 50 years later in 2023.

While awareness of the gender pay gap has grown and some organisations are working to improve the situation, there are other areas where women face financial discrimination that do not always receive the same publicity – most notably their pensions.

Read on to learn what the latest research about the gender pensions gap shows, and how you may be able to shore up your retirement savings.

The gender pensions gap has narrowed, but still sits at 35%

The Department of Work and Pensions (DWP) recently published its inaugural data on the gender pensions gap, showing that it is still a significant issue.

Figures from the UK government show that, between 2018 and 2022, women were likely to have 35% less in retirement savings than men.

This is based on the amount of private pension savings held by men and women at the current “minimum retirement age” of 55 (this will increase to 57 in 2028). The DWP calculated the figures based on pension funds that have not yet been accessed, and they do not include people with no pension savings at all.

The DWP report compared the new figures with the 2006 to 2008 figures, when the gap was 42%. So, although it is still large, the gap has been marginally closed. This will be partly due to the introduction of auto-enrolment in 2021.

Prior to this, there was a large participation gap – women were less likely to pay into a pension at all – and this contributed to the overall gender pensions gap. But when auto-enrolment came into effect, it did a lot to close this participation disparity.

Indeed, thanks to auto-enrolment, the increase in total pension savings for women was £4 billion higher than it was for men.

Yet, the latest figures show that women are still likely to have 35% less in pension savings than men; the participation gap is only part of the story.

The gender pay gap may also have a role to play, with lower average earnings meaning women may not be able contribute as much to their pension.

Additionally, the financial implications of having children and taking full or partial career breaks tends to disproportionately affect women, and this also makes it harder to pay into a pension.

Women pay an average £57,960 “motherhood penalty” in their 40s

Figures show that, while the gender pensions gap affects women of all ages, it widens significantly for women in their 40s before reducing again in later life.

Although everybody’s lifestyle is different, this trend could well exist because this is the age at which the financial effects of having children will come into play, and women often absorb more of these costs.

According to research reported in HR News, for example, women are three times more likely to take a career break for childcare than men. This could mean that women miss out on valuable pension contributions, and it may slow their career progression, ultimately reducing their potential earnings in the future.

Additionally, women may be more likely to work part-time after having children because they often take on a larger share of childcare at home and general housework. As the Guardian reports, women do 65% of the housework in different-sex relationships.

Analysis of the new gender pensions gap figures by interactive investor shows just how much difference this disparity can make.

It found that women’s pension savings would reach an average of £80,960 between the ages of 45 and 49 if they increased at the same rate as men’s between the ages of 35 and 49.

In reality, women’s average pension savings at this age are £46,000, meaning that many people could be paying an average £57,960 “motherhood penalty” in their 40s.

4 effective ways to close the gender pensions gap

The gender pensions gap is a potential problem for women and it is important that you are aware of how it may affect your retirement plans.

Fortunately, there are some steps you may be able to take to boost your retirement savings.

1. Plan ahead for a career break

There are many reasons why you might decide to take an extended break from work including travel, volunteering projects, re-training for a new career, having children, or even for health reasons.

While you may have a good reason for a career break, it can negatively affect your retirement savings as you miss out on vital pension contributions. So, you might want to consider planning ahead where possible.

You can potentially do this by increasing pension contributions for a period before you take a break from work.

If you can afford it, you may also decide to continue making contributions, even while you are not working. You are still able to contribute up to £2,880 to your pension each year and receive £720 in basic-rate tax relief, even if you do not have any earned income.

2. Plan as a couple

In many cases, planning your finances as a couple could leave you both in a stronger position.

If you do decide to take a career break, could your partner contribute to your pension on your behalf during that time?

You may also want to consider contributing to your partner’s pension, or ask them to contribute to yours, if one of you earns significantly more than the other.

As well as helping you maintain pension contributions, you may also benefit from tax relief on those contributions. You’ll receive this tax relief at your marginal rate of Income Tax, even if the person paying into your pension is in a higher tax band.

Over and above the £2,800 referenced above, you could also consider funding an ISA during this period and then transfer this money into your pension when you return to work.

Planning as a couple in this way could help to ensure that you both have healthy pension pots when you retire.

3. Increase contributions

Figures reported in the Actuarial Post show that 73% of women say they only pay the minimum contribution to their pension, compared with 58% of men. Additionally, 10% of men make occasional lump sum payments to their pension compared with just 5% of women.

If you are only paying the minimum amount into your pension, it may be beneficial to increase your contributions, particularly when you get a pay increase. Your employer may also match the increased contributions, depending on their policy.

4. Claim National Insurance credits for childcare

Your State Pension could give you a welcome boost to your retirement income, which is why it is important to make sure you can claim the full amount (the full new State Pension is £203.85 a week in 2023/2024).

However, if you took a career break, you may have gaps in your National Insurance (NI) record for those years. This could mean that you are not entitled to the full State Pension.

The good news is, if you were caring for a child under 12 during that time, and claiming child benefit you can claim NI credits for those years and fill gaps, meaning you may be more likely to receive the full State Pension.

It is still important to make adequate contributions to your workplace or private pensions because these may provide a bigger percentage of your retirement income. That said, claiming the maximum State Pension amount does give you a useful top-up to your income, and you will receive that money for the rest of your life.

Get in touch

If you are concerned about how the gender pensions gap may affect your retirement, get in touch today to discuss potential solutions.

Email hello@fcadvice.co.uk or call 0333 241 9900 today for more information.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.


Categories: Financial Lifestyle Planning

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