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Empowering women in pension planning: a comprehensive guide to overcome pension challenges

January 3, 2024
The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.

We often hear about female progress, the remarkable careers and achievements by women in diverse fields, the success of female entrepreneurs, the beauty of motherhood. Yet, when it comes to retirement, many women still find themselves facing a harsh reality. Women have much lower retirement incomes than men. The average UK pension pot for a 65-year-old woman is 1/5th the average value of a 65-year-old man’s pension. In addition, one-third of female retirees say that they do not have enough in retirement to live comfortably.

These figures (provided by Chartered Insurance Institute and HSBC) highlight the extreme inequality that exists between women and men’s pensions. Despite these alarming figures, there is a noticeable lack of support and information available for women on how to effectively plan for their pensions, considering all the barriers they face.  

This comprehensive guide is dedicated to shedding light on the unique challenges women face when it comes to pensions and retirement, and it offers guidance on how to overcome these challenges. Get the knowledge and tools you need to take control of your pension planning, boost your retirement savings, and secure your financial futures.  

What is the gender pension gap?

Simply put, the gender pension gap refers to the different retirement outcomes for women and men. The biggest difference occurs in private pensions, with data from Prospect suggesting that the gender pension gap for 2020-2021 was 40.5%. This means that, generally, men are living more comfortably in retirement than women.

Prospect also report that in 2021, the gender pension gap was more than twice the size of the gender pay gap. This begs the question, why is nothing more being done about this?

While these figures are concerning, it is important to know that there is opportunity to secure a comfortable retirement for you – the first step is to understand as much as you can about what contributes to the gender pension gap so you can begin to tackle each obstacle.

What factors contribute to the gender pension gap?

The gender pay gap: the gender pay gap has remained at 9.4% since 2017. This means that on average, in the same sector, men are earning more than women. For this reason, men are able to contribute more into their pensions than women. Furthermore, if your employer contributes toward your pension, they do so based on your salary. This means that the employer would be contributing more to their male employee’s pension than to their female employee’s pension (if there is a pay difference in their salary).

Familial obligations: any time that a woman has to take time off from full-time employment to care for children/family, they will be contributing less, if anything, to their pensions. Subsequently, the overall value of their pension reduces. According to Government Censeo data (2021), 1 in 4 mothers are not working in comparison to 1 in 10 fathers.

Pension discrimination: more than 1 in 3 (36%) young women (aged 18-21) do not earn enough to be auto-enrolled into a pension, compared with 1 in 8 (15%) young men.

State Pension: while the gender gap in State Pension income has reduced significantly over the last few decades, there is still an inequality in the average State Pension income for men and women. Prospect report that according to the DWP, women received about £1,300 less State Pension than men in 2020-21. They think that this difference reflects the rules that applied over previous decades – so while equality rules are better now, a lot of State Pensions are still catching up. According to Prospect, this is not projected to be addressed until 2041.

What does this mean for women?

The bottom line is, when it comes to saving for retirement, women are disadvantaged. While the government and other institutions are trying to tackle the pay and pension gap, it is a slow process, and in many cases, we don’t all have the time to wait.

Fortunately, there are things you can start to do now to prepare for retirement. Taking control of your savings is a big step towards financial empowerment.

What can women do to effectively plan for retirement?

Start early: the longer you pay into your pension for, the more you will have in the end. Start as early as you can. For workplace pensions, you are automatically enrolled once you turn 22, work in the UK, and earn at least £10,000 a year (as of 2023/24). If you are between 16 and 22, you can and should opt in to contributing towards a workplace pension, as long as you earn £6,250 or more per year (tax year 2023/24). If you have the affordability to do so, it is worth considering paying into a private pension as soon as you can.

Understand the gender pay gap: if you are aware that you are earning less than your male counterpart then you may be in a position to negotiate a higher salary. The more you earn, the more you are able to contribute into your workplace pension. A higher salary means that your workplace will contribute more to your workplace pension, as their contribution is a percentage of your salary. Also, having a higher salary gives you better financial means to consider contributing into a private pension. Of course, negotiating a higher salary isn’t always possible, but if you see an opportunity to do so, you should always take it.

Understand your pension: all pension types and providers offer different benefits. For example, lower fees or better performance history. It is worth knowing what benefits your pension offers, and if you would be better off switching to a different pension. It is important to remember that past performance is not a reliable indicator of future results. As with all investments, capital is at risk. Speaking with a regulated financial adviser can help you to make this decision.

Make as many contributions as you can: you can make additional contributions to your pension. While this isn’t always possible, any additional contributions can help to compensate for times when you may be out of work, for example, to care for children.

Plan for longer life expectancy: on average, women live longer than men. This means retirement savings may need to last longer – it is important to consider this when budgeting your pension.

Consider getting regulated financial advice: understanding how to invest and save effectively can be complicated, and there are often options available to you that you are unaware of. Speaking with a regulated financial adviser can help you to make sure you are not missing out on anything.

Look into joint allowances: some pension providers might offer joint spousal benefits. This means that upon the death of one partner, the surviving partner can continue receiving pension benefits.  

It is important to note that pensions, by their very nature, are liable to swings in value. As with all investments, capital is at risk. This is not financial advice – to make sure you have been informed of all the options that are appropriate for your circumstances, you should consult with a regulated financial adviser, such as Pension Access.

In summary

It’s clear that the gender pension gap is a problem that needs more attention. There are many organisations demanding that these problems are reviewed and considered by the government – hopefully we will get there soon. In the meanwhile, by understanding the causes and effects of the gender pension gap and taking proactive steps to address these challenges, women can empower themselves towards financial security, independence, and a comfortable retirement.

https://www.cii.co.uk/media/10120355/moments-that-matter-pensions-life-journey-for-women.pdf

https://www.gov.uk/government/statistics/gender-pensions-gap-in-private-pensions/the-gender-pensions-gap-in-private-pensions

https://www.hsbc.co.uk/retirement/how-women-can-boost-their-retirement-savings/#:~:text=1.,make%20the%20most%20of%20it.

https://researchbriefings.files.parliament.uk/documents/CBP-9517/CBP-9517.pdf

https://library.prospect.org.uk/download/2023/00254

https://www.tuc.org.uk/news/tuc-women-more-twice-likely-men-miss-out-pensions-auto-enrolment#:~:text=Today’s%20analysis%20reveals%20that%20more,employers%20to%20auto%2Denrol%20them.

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/familiesandthelabourmarketengland/2021

https://www.gov.uk/workplace-pensions/joining-a-workplace-pension#:~:text=This%20is%20called%20’automatic%20enrolment,22%20and%20State%20Pension%20age

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