Women’s pension pots half the size of men’s – six tips for bridging the gap

Women still behind men when it comes to pension saving

By the age of 50, women have only half as much in pension savings as men, according to research from Aegon.

Paying women less than men for doing the same job has been illegal for almost 50 years, so why are women’s pension savings only averaging at £56,000, whilst men have £112,000?

There are two key factors:

Career breaks

In 2016, 550,000 women were taking a break from their career to look after relatives, whilst two million women were not working due to parental responsibilities. (Source: Women Returners)

In comparison, 240,000 men stayed at home to care for children, just over a tenth of the number of women.

Time off for pregnancy, childcare and caring for relatives means that many women have significant breaks in their career and working history. During those times, saving money for the future becomes a low priority.

Without an income, no money can be put aside for later, and there are no employer contributions.

Gaps in employment can also mean that those women have not paid National Insurance (NI) for long enough to claim a full State pension. Claiming the full State Pension requires 35 qualifying years; these are years during which you have paid NI or claimed Pension Credits alongside government benefits. However, you can claim with 10 or more years for a lower income. (Source: Gov.uk)

Employment type

In what is colloquially known as the ‘glass ceiling’, women are still less likely to be placed in more senior roles. The Chartered Management Institute reports that almost three quarters (74%) of upper management positions are held by men. 66% of lower management positions are held by women.

Even for the women who do make up 26% of upper management roles, pay is still unequal. The average pay for male directors is £175,673, whilst female directors receive an average salary of £141,529.

Bonuses for CEOs show an even bigger divide, with an average of £89,230 for males and £14,945 for females. That’s a difference of 83%.

The outlook for those enrolled in workplace pension schemes is not much brighter, as both employer and employee contributions are percentage based. Therefore, lower earnings will directly lead to smaller contributions.

Fortunately, no matter your working patterns or salary, there are several things you can do to bridge the gap and improve your financial stability in retirement.

1. Understand your savings

To know what you need, you need to know what you have. Over a quarter of women (28%) don’t know how much they have in savings already. Without knowing that, it is impossible to know your shortfall. (Source: Aegon)

2. Understand what you need

You can’t begin to set savings goals until you know how much you will need to live on when you stop working. According to Aegon, just under half (42%) of women have not thought about their required retirement income. This means that they may not save enough and run out of money to live on in their later years.

3. Address the shortfall as early as possible

The difference between men and women’s pension savings widens as the years go on. Therefore, acknowledging that you may need to save more each month to catch up will be more cost-effective if you start younger.

Aegon’s report shows that 30-year-old women will need to save an extra £21 each month to bring their pension in line with their male counterparts. However, if you start filling in the holes at the age of 50, you will need to contribute an additional £360 each month; which is likely to be entirely unrealistic.

4. Join your workplace pension

Automatic enrolment means that all employees earning £10,000 or more each year and aged 22 and above are placed into a workplace pension which both they and their employer contribute to each month. However, these criteria mean that just two fifths of eligible employees are female and that women are disproportionately more likely to fall outside of the earnings bracket.

Even if you earn less than £10,000 per year, you can ask your employer to add you to the company’s workplace pension. This will mean that you can save for retirement directly from your wages and will benefit from contributions made by your employer.

If you are already enrolled into a workplace pension, the answer is simple; don’t opt out.

5. Contribute the required number of years to get a State Pension

A State Pension will be paid to anybody with between 10 and 35 qualifying years behind them. These are years which you have either paid National Insurance or claimed National Insurance credits as part of a government benefit.

The amount you get depends on how many years National Insurance you have paid. Only those with the full 35 years will receive the full State Pension.

If you have missed years or had years where you have earned less than £157 per week, you can make voluntary National Insurance payments to increase the number of qualifying years on your record. Find out how many years you have and make any voluntary payments on the gov.uk website.

6. Take advice

Independent advice, tailored to your needs and circumstances, can help you to find financial stability and develop a plan to ensure that you have enough money to live in the present, whilst also saving for the future.

To discuss your pension and retirement income needs, feel free to get in touch with us on 0207 808 4120.