How do we escape the pension gender gap?

  • 25 September 2020
  • 10 minute read
  • Women’s pension savings and incomes are significantly lower than men’s .

  • Earning less, doing less paid work, saving less, investing too cautiously, and lacking interest could all be to blame .

  • Prioritising your pensions and other savings could help you build a brighter future.

The gender pay gap is a well-publicised issue. Women (and many men) are rightly outraged by the disparity in women’s pay, but the wheels of progress are creaking slowly as society attempts to set things right. But lurking under the surface of the pay gap is another hole that has further serious consequences for women’s financial wellbeing. It’s time to talk about the gender pension gap.

According to Fidelity International, almost one quarter of women (23%) felt anxious about retirement planning, 13% (that’s nearly one in eight) felt overwhelmed by the topic and 15% (or one in seven) found the subject of retirement planning confusing.

What is the gender pension gap?

The Pension Policy Institute looked at this question in July 2019. It found that women in the UK have significantly less pension savings than men. They have, on average, £51,000 in their pension pot, while men have around £157,000. Many have nothing set aside with 50% more women than men facing retirement with no private pension savings at all.

This lower level of savings, of course, translates into lower pension incomes for women in retirement. In March 2020, the Organisation for Economic Cooperation and Development found that in the UK, pension payments to women over age 65 are around 35% lower than those paid to men.

And, of course, longer lifespans mean women have to make their savings go further. Approximately three years further, according to the Office for National Statistics (ONS). What are the causes?

Women earn less than men

Over their lifetime women tend to earn less than men. The ONS regularly reports on this and whilst things are improving, it is still true that women are paid less for comparable work they’re also more likely to be in lower-paid occupations.

Read more: How can we close the gender pay gap?

Women take more time out for domestic commitments

The same report found that women are also more likely to work part time, and take time out to care for their family.

The ONS tells us that in 2019, 24.9% of women in the UK with dependent children were not in paid work at all, compared with only 7.4% of men. Of those women who were working, more than 28% said they’d reduced their working hours because of childcare reasons, but this was true of less than 5% of men.

These figures are pre-COVID, and it will be interesting to see whether next year’s report shows an increase in shared childcare duties while parents work from home and with parents being furloughed.

It’s not just about children though. Age UK recently highlighted that the burden of social care is also falling to women, with increasing numbers of carers looking after elderly family members at the same time as children. Sixty-eight percent of these ‘sandwich’ carers are women.

Women save less than men

Making less money means having less cash to stash, and possibly prioritising other things over pension saving. In its 2019 report Women and pensions, Scottish Widows said: ‘Given the gap in typical income, it is perhaps no surprise to find that women are more likely to cite financial commitments as a reason for opting out of a pension.’

Women receive less employer pension contributions

Permanent, full-time jobs usually offer the most in terms of pensions and other benefits, but according to the Pension Policy Institute women are swapping these benefits for flexibility.

For example, the 1.2 million women taking time off to care for children are missing out on automatic enrolment pension contributions from an employer. Plus, another 1.4 million women don’t earn enough to reach the £10,000 threshold to qualify for automatic enrolment in their company pension scheme.

Employer’s contributions are based on a percentage of your salary. So the gender pay gap catches women again as lower salaries mean lower payments into workplace pensions. And this is exactly what’s going on. As reported by Small Business magazine, the average amount in a woman’s workplace pension is less than half that of a male co-worker (£53,000 vs £120,000). And women are twice as likely to have less than £5,000 in workplace pension savings.

Women receive lower state pension payments

The qualifying rules for the State Pension changed in 2010 and again in 2016, and things have improved for women, but not completely. A Which? study in 2018 looked at almost 12.9 million people receiving the state pension and found that the average man received £153.86 a week and the average woman £125.98. £27 a week doesn’t sound huge, but over a 20-year retirement that would tot up to almost £29,000.

There has been much trumpeting of the New State Pension. But as the Money Advice Service warns, to qualify for it you need 35 full years’ National Insurance contributions. You will still need to have paid at least 30 years’ contributions to qualify for the Basic State Pension. But as we have seen, women are more likely to take career breaks than men to care for either their children or their parents – and sometimes to do both – and can reduce their entitlement.

Are women more cautious investors?

The old cliché of women being the naturally more cautious and less confident investors of the species lives on in 2020. The stats confirm that far more men than women invest in stocks and shares ISAs. While in July of this year, Bloomberg reported that women in the UK choose pension investments that are more defensive quoting from a report by employee benefit consultants Mercer. These types of investments tend to deliver lower long-term returns.

But that isn’t always a bad thing. As we reported in Are you making these costly mistakes? men can be over confident, which can itself damage long-term returns.

Women take less interest in financial matters

This is another gender stereotype that appears to be supported by the evidence. According to Interactive Investor, 34% of women say they find managing money a bore, compared with 15% of men. Unbiased, the organisation representing financial advisers, suggests that women are ‘less pension conscious’ than men and that ‘nearly half of women in the UK haven’t thought about how much income they want in retirement, or how much they need to save to get it.’

These findings also hint at an even more worrying possible reason for the gender pension gap – women are simply leaving their pension management to men. Leaving something really important to someone else is a risky strategy in any situation. And if the relationship unravels in divorce, it’s often the men who come out better on the pension front.

Again, in July 2019, the Pension Policy Institute’s Understanding the gender pension gap, reported the average divorced woman reaches retirement with a pension pot of £26,100 whilst the ex-husbands have £103,500.

What can women do to overcome the gender pension gap?

If you are anxious about your future financial wellbeing, being aware of your situation is the first step towards building yourself a more confident future. Once you have a better understanding of the challenges you face, you can start taking back control of the situation. So what practical steps can you take?

Make sure you’re being paid properly

Research what you’re worth and if you’re not getting it, then ask for it. Our article on the gender pay gap has some tips on this.

Share domestic responsibilities with your partner

It’s good for both men and women to strike a balance between paid work and family duties. As well as boosting women’s career prospects and savings, many men could benefit from taking time away from the pressures of the workplace and spending it with family. It’s sad that even in the twenty-first century there is still a bias towards men being the bread winners and women making the sandwiches.

Make a pension plan

Women have a reputation for excellence in planning the household budget, Christmases and holidays etc. Put those same planning skills to use and look at how you might be able to improve your retirement.

Online calculators can be really helpful. Try the Money Advice Service Pension Calculator or Scottish Widows Pensions Options Calculator to get you started.

Pensions are a long-term investment. The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits, which isn’t guaranteed, and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.

Try to prioritise your pension savings

Yes, there’s plenty of stuff to pay for right now, but a lot of it doesn’t go away in retirement. Don’t be tempted to take the popular option of relying on your partner for your retirement income while you pay the childcare costs. Both should be shared responsibilities: your pension is just as important as your partner’s.

• Check your National Insurance contributions

Not many people realise it, but you can actually check how many years’ National Insurance contributions you’ve made. If you do a self-assessment tax return at the end of each year, just log onto your account; otherwise you’ll have to create an account to see your records.

You can even make voluntary contributions to boost your record but only for the previous six tax years.

• Pay into your workplace pension

If your employer has a pension scheme then brilliant because as you pay in, so does your employer. You may already be paying into a scheme without realising it, although if you are under the age of 22 or earn less than £10,000 a year you will not be signed up automatically.

If you earn more than £6,240, you still have the right to join the scheme and have your employer contribute to your pension, but it won’t be automatic. Below this threshold, you can still ask to join but your employer is not legally required to make any contributions.

• Consider a private pension

In any single tax year you can contribute up to 100% of your salary to a limit of £40,000 into pension schemes. This includes any payments made by you and your employer into your company’s scheme. So if you feel you can afford to, set up a personal scheme to take additional payments.

Not working is no impediment to saving for retirement. You can pay up to £3,600 year into a personal pension even if you have no earnings. And as transfers between spouses are exempt from tax, your husband, wife, or civil partner could make this contribution for you.

If you don’t want to tie your money up until you’re at least 55, think of paying into an ISA. Although there are no tax benefits when you pay money in, any growth or income generated within the account are free of tax and can be accessed at any time.

Read more: How your ISAs could rescue your retirement

Learn more about the world of finance

Financial jargon can be off-putting at first. Making the effort to gain even a basic understanding of investments and economics could help you feel more comfortable managing and discussing your financial affairs.

And in the past, the language has discouraged people from seeking professional advice in this area. But like physicians and lawyers, the financial services industry is making improvements in how it engages with its clients.

Read more: Advisers will bamboozle me with jargon

And this could help you overcome your personal gender pension gap to provide the peace of mind that comes with knowing you’re on track for a more comfortable retirement. wellbeing.

Important information

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

Fees and charges apply at Schroders Personal Wealth.

In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.

Let's start with a free initial consultation

We'll begin with a free, no obligation conversation to understand if our service is right for you. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.

Tap into some of the finest minds in the business

Want to keep up to date with topics that could impact your finances? Sign up to receive our regular informative and insightful updates to help you better understand the financial landscape. You will also receive invites to exclusive virtual and face-to-face events.

This site is protected by reCAPTCHA and the Google privacy policy and terms of service apply.

Read our latest financial insights