Equality for women has come a long way since the struggle of the suffragette movement, such as the Equal Pay Act and fair representation in government. Yet one area of inequality unfortunately still remains: the gender pension gap.
In fact, a recent report from Royal London shows that there is still a 35% pension gap in favour of men. This disparity means that women are, on average, retiring with substantially less in their pension pots than men, which could affect their financial security later in life.
This could translate to a reduced quality of life, limited lifestyle choices, and a greater risk of experiencing financial hardship during retirement.
Conveniently, Britain’s first Women’s Institute opened in Wales on 16 September 1915, so this could be the ideal time to examine the reasons behind the disparity between pension savings and explore some proactive steps you could take to bridge the gap.
The gender pension gap exists due to lower earnings and career breaks
There are several reasons the gender pension gap exists, but two main elements have been particularly influential and understanding these factors could help you address the disparity.
Firstly, women typically have lower earnings than men. Data from the Office for National Statistics (ONS) shows that while the gender pay divide has been gradually decreasing, it still stood at 7.7% in April 2023.
While this gap is closing, progress remains slow. Lower earnings mean that even if women contribute the same percentage of their salary to their pension as men, the total amount saved tends to be less, directly affecting the growth of your pension over time.
Another significant factor that contributes to the gender pension gap is the fact that many women take career breaks to care for their families.
These breaks often mean that women miss out on crucial years in which men who remain in work increase their earnings. As such, women’s pension contributions typically fall, too.
When women do return to work, their earnings frequently don’t recover. According to BusinessNews, half of the women who return to work after having children earn less than they did before taking time off.
Moreover, some women might return to work part-time or in lower-paid roles that offer less potential for earnings growth and pension contributions.
This can directly affect the amount that women are able to save for retirement, further widening the pension gap.
Despite these challenges, it’s worth noting that some positive changes have been made to reduce the gap. For instance, the Financial Times reveals that the introduction of auto-enrolment in 2012 has helped boost women’s pension savings.
There are proactive steps you can take to bridge the gender pension gap
While we’re moving in the right direction in closing the gender pension gap, the disparity still remains, and much more needs to be done.
Thankfully, there are some actionable steps you can take to close the gap and work towards financial parity in retirement. Read on to discover three of these.
1. Save from the start of your career
One of the more effective ways to close the gender pension gap is simply to start saving into your pension as early as possible in your career.
Typically, the earlier you begin, the more time your savings have to grow and benefit from compounding returns – that is, growth on growth.
Data from Schroders shows how this can work. If you started saving £100 a month into your pension from the age of 21 and stopped at 30 then, assuming annual returns of 7%, your savings would amount to £282,325 by the time you turned 70.
Meanwhile, if you waited until the age of 31 before saving £100 a month until you’re 70, your pot would only be worth £262,481. Despite contributing more overall in this example, you’d still have more in your pot by the time you turned 70 if you contributed for those first 10 years and then stopped.
The power of compounding means that the longer your pension has to accrue interest, the larger it will typically be by the time you reach retirement.
This underscores the importance of prioritising your pension contributions as soon as you can, as doing so could help you achieve a comfortable retirement.
2. Maintain and increase your contributions over time
Even though auto-enrolment may have made it easier for you to start saving for retirement if you are employed, it also means that you might only be making the minimum contributions. Typically, this is set at 8%, made up of 3% from your employer, 4% from your salary and 1% from tax relief.
Yet, maintaining or even increasing your contributions over time could help you build a substantial pension pot later down the line.
Indeed, Fidelity reports that if you earned £60,000 each year and saved 5% of your salary into your pension, you would be setting aside £250 a month for your retirement.
If you added a further 1% of your salary, this would raise the total amount saved after 30 years from around £208,000 to almost £250,000 – a rise of more than 20%.
Increasing contributions as your earnings rise might be especially practical. Not only can this help you grow your retirement fund, but if your earnings push you into a higher tax band, you may be eligible for higher rates of tax relief on your contributions.
Additionally, many employers might even offer to match your employee contributions and could provide more than the standard 3%.
Taking full advantage of this could significantly boost your pension savings, helping you bridge the gender gap.
3. Discuss your pension savings with your partner
If you’re taking time off work to care for children or other family members, it’s crucial to discuss your pension savings with your partner if you have one, especially if they’re still working.
One effective strategy to potentially bridge the gender pension gap is for your spouse or civil partner to continue contributing to your pension during your career break. They can do this alongside their own contributions, or by dividing what they usually pay into their pot into both.
It’s worth noting that tax relief is paid at your own marginal rate, even if someone else makes the contributions, and women who aren’t working might have a lower Annual Allowance.
Still, this approach could help ensure that you don’t miss out on essential contributions while you’re caring for your family, reducing the gap between your two pension funds.
Get in touch
Whether you’re a man or a woman, we could help you bolster your retirement fund so you can achieve your dream lifestyle in the next phase of your life.
Please email us at info@investmentsense.co.uk or call 0115 933 8433 to find out more.
Please note
This article 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 performance.
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.
