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The gender pension gap, and how to beat it

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As we mark both International Women’s Day and Mother’s Day this week, we wanted to take the time to reflect on the disparity between female and male pension savers, the ‘gender pension gap’ and how you can plan effectively for the retirement you deserve.

According to data* from our partners at Profile Pensions, women account for just over 27% of pension account holders while men make up more than 72%. The research also found that women hold just shy of 18% of total assets under management (AUM), meaning that male account holders have over 82% of total funds invested with Profile Pensions. This represents a huge disparity and one which we think more women should be aware of as they plan for their lives after work.  

“As we commemorate International Women’s Day, it’s a crucial moment to emphasise the importance of early financial planning, specifically contributing to pensions,” says Chris Rudden, Head of Investment Consultants UK. “Encouraging women to start investing into their pensions early not only ensures a more comfortable retirement but also contributes to closing the gender pension gap.”

So, what factors lie behind the disparity in pension provision, and how can you plan to ‘beat’ the gap when you retire? But first, let’s start with the basics. 

What is the gender pension gap?

The gender pension gap refers to the difference in retirement savings and pension benefits between men and women. It reflects the disparities in earnings, employment patterns and pension provision that affect women’s financial security in retirement in comparison to their male counterparts.

“In the UK, women continue to face challenges in building a secure financial future, especially when it comes to pensions,” notes Chris. “Women in the UK retire with significantly smaller pensions than their male counterparts, according to the latest Government data, this is on average 35% lower. The gender pension gap is a stark reality and largely attributed to factors such as career breaks, part-time employment, and the gender pay gap.”

There are a number of crucial factors at play that contribute to the gender pension gap. The most significant of which tend to be:  

The gender pay gap  

Women in the UK, on average, earn less than men. Research from the Institute for Fiscal Studies (IFS) shows women’s average weekly earnings are around 34% lower than men’s*, partly due to differences in working patterns. 

The gender pay gap represents the disparity in earnings between men and women, which can result from various factors including occupational segregation, discrimination and career interruptions due to caregiving responsibilities.

Part-time work and career breaks  

Women are more likely than men to work part-time or take career breaks to care for children or elderly relatives. Statistics from Carers UK reveal that by the age of 59, 50% of women have responsibilities for older age relatives, compared to age 75 for men.

Part-time work also often comes with lower pay and reduced access to workplace pensions, leading to lower pension contributions over the course of their careers.

Greater reliance on the state pension  

The state pension is based on your National Insurance contributions, with individuals needing a minimum number of qualifying years of contributions to receive the full state pension. Research by the Office for National Statistics (ONS) shows that women’s lower pension savings and benefits can lead to financial challenges in retirement, including a higher risk of poverty and reliance on state benefits**.

Women who took time out of the workforce for caregiving or worked part-time may have gaps in their National Insurance records, affecting their entitlement to the full state pension.

Less private pension provision  

Women are less likely than men to have private pensions or to participate in workplace pension schemes, particularly in smaller businesses or industries where pension provision may be less comprehensive.

A report by NOW:Pensions and the Pensions Policy Institute forecasts that by the age of 67, women will have average pension savings of £69,000, falling far behind men, who have £136,000 more in their pension pot.

Greater life expectancy

Women tend to live longer than men on average, meaning they may need their retirement savings to stretch over a longer period. This longevity factor can amplify the impact of the pension gender gap for women.

All this makes raising awareness about financial planning and retirement saving among women more important to help mitigate the effects of the pension gender gap and improve your financial security in retirement.

What can you do to beat the gender pension gap?

There are several important steps you can take to mitigate the effects of the gender pension gap and improve your financial prospects for life after work:

Start saving early – Begin saving for retirement as early as possible. Even small contributions made over time can grow significantly due to compound interest.

According to research by the Pensions Policy Institute (PPI), women are less likely than men to participate in workplace pension schemes, with 74% of eligible women participating compared to 82% of eligible men.

Maximise your contributions – Take advantage of your employer’s pension contributions by maximising your own contributions each month. You should always consider contributing more than the minimum required amount if you can. This will help your pension pot grow through compound interest and by staying invested in the market for longer.

Invest wisely – Educate yourself about different investment options and consider seeking professional financial advice to make informed investment decisions. At Moneyfarm, we believe that having a diversified investment strategy is the best way to manage risk and potentially achieve higher returns over the long term. 

Plan for any interruptions to your working life – If you anticipate taking time out of the workforce for caregiving responsibilities or any other reason, plan ahead by saving more aggressively during periods of employment and exploring flexible work arrangements when you return to work.

Keep on top of your finances – Stay informed about changes to pension regulations and seek regular financial reviews to ensure your retirement plan remains on track. Consider updating your retirement goals and strategies as your circumstances change over time.

By taking proactive steps to save, invest, and plan for retirement, you can help mitigate the impact of the gender pension gap and work towards achieving financial security in later life.

If you need any help or guidance in planning your retirement, you can contact a member of our consultancy team at any time by booking an appointment or reaching out to us via email, phone or live chat, and we’ll be happy to help.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.