The pensions gap – the difference between the average woman’s and man’s pension pot – is significant, but certainly not insurmountable if you are proactive. Here, Poppy Fox, Investment Director at Quilter Cheviot, explains how women can minimise their shortfall and so give themselves perhaps the best Christmas present of all.
The average woman can expect to retire with £100,000 less in her pension than the average man, according to research by Scottish Widows, which looked at the average savings rates on the median wage over a 44-year career.
According to figures from the Office for National Statistics, among full-time employees the gender pay gap in April 2021 was 7.9%
The pensions gap is a result of systemic issues. The gender pay gap, the percentage difference between average hourly earnings for men and women, certainly plays a role. According to figures from the Office for National Statistics, among full-time employees the gender pay gap in April 2021 was 7.9%. Also contributing to the pension gap is the fact that women are more likely to take longer career breaks for childcare, or to care for elderly relatives, which takes a toll on their earning power and therefore their pension contributions.
With women likely to live around four years longer than men, according to the ONS, it is crucial women understand the pensions gap and what causes it so they can take steps to increase their retirement fund.
A proactive response
Although the reasons for the pension gap are largely systemic, beating the system requires women to be proactive about saving for retirement. Increasing pension contributions as early on as possible is a good place to start, giving savings longer to compound during a more than four-decade long working life.
Women should become comfortable with the rules around pensions, especially those that will impact them the most
Women should become comfortable with the rules around pensions, especially those that will impact them the most. For example, if a woman earns less than £10,000 per year from an employer, she will not be automatically enrolled into that company’s pension scheme. Women in such a position need to be proactive about either setting up a private pension or asking their employer to be enrolled onto theirs. In addition, women need not miss out on National Insurance contributions (NICs) to put towards their state pension entitlements if they take time off work to raise children. Women can claim child benefit to be credited with NICs regardless of their household income, meaning they do not miss out on state pension entitlements at retirement.
Equities have historically delivered higher returns than bonds because they come with a higher risk, and in this case, more risk can equal higher returns
It pays to review pension investments, as assets like equities can help to boost the value of a pension pot more significantly than the likes of bonds for example. Equities have historically delivered higher returns than bonds because they come with a higher risk, and in this case, more risk can equal higher returns. Women can contact their pension provider for help on reweighting their pension portfolio, or their financial adviser to see what sort of investment strategy is most appropriate for them.
In a divorce, women should bring pensions into the discussion. Nearly three-quarters of divorced people did not discuss pension sharing during divorce proceedings, the Chartered Insurance Institute found. Yet a person’s pension could be worth more than their house. Women can take advantage of a Pension Sharing Order, a legal document that means the pensions of a divorcing couple could be split fairly.
Women can take advantage of a Pension Sharing Order, a legal document that means the pensions of a divorcing couple could be split fairly
The pensions gap is slowly closing. Scottish Widows found 59% of women are now saving adequately for retirement – which the pension provider defines as at least 12% of income – compared with 60% of men. This does not paint the entire picture, however. Women on average earn less, and so they only save around £2,300 a year towards their retirement, compared to the average man, who saves more than £3,600.
Closing the pensions gap requires women to take an active role in retirement planning to overcome the systemic issues facing them
Closing the pensions gap requires women to take an active role in retirement planning to overcome the systemic issues facing them. Many people are guilty of burying their heads in the sand when it comes to their pension. However, for a happy and financially secure retirement it is important to take the right steps to grow your pension pot, and for women to be aware of some of the hurdles they may face along the way.
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.