Professional women have discovered that there can be a staggering 35% difference between men’s and women’s private pension pots.
Recent reports from the Department for Work and Pensions (DWP) revealed these figures – which have made way for a wider-than-before gender pensions gap – have left many women unaware of how they have been impacted and also unprepared financially for their retirement.
What is the Gender Pensions Gap?
Defined by taking multiple factors into account, such as the amount of money saved, wealth accumulated, and income received in retirement, it measures the inequality between average male and female pension wealth.
In 2023, the DWP released ‘The Gender Pensions Gap in Private Pensions’ report1 which calculated the true scale of private pension inequity in the UK. This found that:
- On average, women have 35% less wealth accumulated in their pension than men
- Women invest £510 a year less than their male counterparts in the private sector
- Women are able to contribute £2,160 less than the median male in the public sector
- Overall, male professionals invest £10.6 billion per annum more than women in total pension wealth.
Why is there an inequality between men’s and women’s pensions?
Whilst the introduction of auto-enrolment pension schemes has seen a positive shift in more women having access to a pension scheme, there are several factors that can lead to a disparity between men’s and women’s final pension wealth.
A House of Commons briefing report2 showed the leading causes of the gender pension gap identified as:
- Unpaid care work, for young children or relatives
- Part-time employment
- Longer life expectancy for women – so having to finance a longer retirement
- Reliance on partner’s income
- Divorce, and thus losing access to a partner’s pension.
Collectively, a lot of these can be summed up as the ‘motherhood penalty’; having a career break to have children, paying additional childcare costs and experiencing a reduced regular income in the period following.
This tends to lead to a significant dependence on a partner’s income and pension for financial comfort in later life, rather than having sufficient independent means.
What can professional women do to build their pension wealth?
It is never too early to begin assessing your pension – having a head start in what you can contribute now will provide a clearer sense of what you can be worth later.
Here are three ways you can begin to prepare:
- Review your current and future finances
By reviewing and assessing your current finances, a clearer picture can be gained for realistic financial goals in retirement.
You will then know how much you can afford to contribute to your pension regularly now, and what wealth you can expect to accumulate over time; and whether you are confident that this will be enough to provide independent financial security in retirement if an unexpected event were to occur.
- Agree ‘fair’ pension contributions with your partner during childcare
For most women, planning to have children also means planning for a career break. During the maternity period – and usually longer – new mothers will experience a large reduction in their typical income as they move away from full-time work, which can impact their pension contributions as well.
Men, on the other hand, tend to not have the same break from work, so are able to accumulate a larger pension pot over the same period.
Agreeing with your partner a fair balance of making regular contributions into both of your pensions helps to ensure that your future finances are being considered, whilst you invest your time into being with the children.
Then, if you are not working or earning any income, you can still pay up to £2,880 per year (£3,600 with tax relief) into a pension.
Furthermore, if you choose to not work after having children, you must register for Child Benefit, even if your household earnings exceed the threshold to receive money.
The act of registering means that, if you don’t return to work, you will receive a National Insurance credit towards your State Pension for each year, until your child is 12.
- Be smart with how you manage your pension
There are several ways you can maximise your investment to help provide greater financial comfort in retirement.
- Review old pensions – having multiple pensions can be tricky to keep on top of. An experienced financial adviser can help you understand all the options available to you and how they relate to your retirement goals.
- Understand your risk profile and what fund(s) your pension is invested in. The longer the timeframe to retirement, the higher the amount of investment risk it may be appropriate to take over the next few years.
“Dare to be Fair” www.dare2befair.com is a must-read book and a rallying cry for women of all ages. Written by award-winning Chartered Financial Planner and pensions expert, Amanda Redman, she challenges you to open your eyes to how you are valued – and to rethink how you value yourself. It is also a practical guide for you to take control of your financial destiny and become a confident financial decision-maker.
SOURCES
- The Gender Pensions Gap in Private Pensions, Department for Work & Pensions. Published 5 June 2023. Accessed at: https://www.gov.uk/government/statistics/gender-pensions-gap-in-private-pensions/the-gender-pensions-gap-in-private-pensions#:~:text=among%20adults%20aged%2016%20to,a%20contribution%20gap%20of%2017%25.
- The Gender Pension Gap, Dr Rajiv Prabhakar, House of Commons Library. Published 4 April 2022. Accessed at: https://researchbriefings.files.parliament.uk/documents/CBP-9517/CBP-9517.pdf [researchbriefings.files.parliament.uk]
Amanda Redman, Chartered Financial Planner and Pensions Specialist.
