Pension & retirement
Fiona Ruck
While the gender pay gap has gained significant attention, the gender pension gap remains a critical yet often overlooked issue. This gap signifies that women retire with significantly less pension savings than men, that can result in financial difficulties in later years.
It’s important to try and understand the factors driving this disparity and taking early, informed steps are crucial for young women to secure their financial futures. By educating and guiding the next generation, we can work towards preventing future generations from facing the same challenges. Our awareness and encouraging them to take a proactive approach is essential to bridging the pension gap and ensuring a more equitable retirement for all.
The gender pension gap refers to the disparity in pension savings and subsequent retirement income between men and women. According to research from the Department for Work & Pensions, the gap in private pensions currently stands at 35%. This stark difference means that for every £100 a man has in pension savings, a woman has only £65. This gap is particularly concerning as women tend to live longer than men and therefore need their pension savings to last longer.
Several factors contribute to the gender pension gap, one of the primary ones being the gender pay gap. Historical and ongoing pay inequalities mean that women’s salaries often lag behind those of their male counterparts, which directly impacts their ability to contribute to their pensions.
Research also shows that career breaks for caregiving responsibilities can also play a significant role. Women are more likely to take more time off work to raise children or care for elderly relatives, which interrupts their pension contributions and reduces their overall savings. Upon returning to the workforce, many women opt for part-time work to balance their caregiving duties, which further limits their pension contributions.
Societal expectations and financial pressures can also deter young women from starting their pension savings early. While 19% of men begin contributing to their pension by age 22, only 14% of women do so. Early contributions are crucial as the power of compound interest significantly benefits those who start saving earlier.
Despite the clear benefits of early savings, many young women miss out on the opportunity to build their pension pots from a young age. This missed opportunity is important because the pension gap widens with age. While the difference in pension values between men and women is 10% at the age of 25, it grows to a staggering 50% by age 50.
A recent survey highlighted that 10% of young women have opted out of their employer’s pension scheme, risking their chances of a comfortable retirement. Opting out of an employer’s pension scheme can have severe long-term consequences. Those who opt out miss out on employer contributions and compound interest gains.
While the gender pension gap has been narrowing, it is doing so at an almost glacial pace. Between 2006 and 2020, the gap shrank by 7%, but this rate is insufficient to prevent generations of women from facing substantially poorer retirements than men. One of the most significant factors in closing this gap has been the introduction of auto-enrolment for workplace pensions. Auto-enrolment, which began in the UK in 2012, has led to a vast increase in the number of women saving into pensions.
However, while auto-enrolment has helped increase participation, it alone cannot close the pension gap. More comprehensive reforms are needed, such as providing more flexible working arrangements and affordable childcare to enable women to return to work and build their pensions.
Young women can take several steps to close their personal pension gap. Starting early is crucial. The earlier you start contributing to your pension, the more you benefit from compound interest. Even small contributions in your 20s can grow substantially over time. Ensuring you are enrolled in your workplace pension scheme and taking full advantage of any employer matching contributions is another essential strategy. This ‘free money’ can significantly boost your pension pot.
Additionally, increasing your pension contributions, even by a small amount, can have a significant impact. For instance, an extra £50 per month can substantially increase your retirement savings over time due to the power of compounding. Sharing the load of career breaks, if possible, and continuing to contribute to your pension during any breaks will also be beneficial. For those taking maternity leave, considering increasing contributions before leave can help mitigate the impact of lower contributions.
Utilising government schemes can also be beneficial. Signing up for child benefit in the mother’s name ensures continued state pension entitlement while out of the workplace. If your partner can afford it, they could cover your pension contributions while you are taking care of your children. Anyone can pay into someone else’s private pension, and if you aren’t earning, your partner can pay up to £2,880 a year into your pension, which will be boosted to £3,600 with tax relief.
By understanding the importance of starting early, maximising contributions, and utilising available resources, young women can take control of their financial futures. While policy changes at the government level are essential, individual actions can also make a significant difference.
Are you taking control of your financial future? Start today by reviewing your pension contributions and seeking professional advice if needed. For more information or personalised advice on enhancing your retirement planning, consider reaching out to financial planners who can offer expert guidance tailored to your individual needs.
By raising awareness about the gender pension gap and the steps needed to close it, we can help ensure that more women enjoy a financially secure retirement. The disparity between retirement expectations and reality for young women is concerning, but with proactive measures, it is possible to achieve a brighter financial future.
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