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Why are women poorer in retirement?

In the UK, Brits are struggling to save for their future, yet the average man retires with a pension pot worth five times more than their female friends, research shows. This disparity has serious consequences for the financial security of women in their retirement.

Moneyfarm research highlights that a third of people in the UK feel totally unprepared for the future or try not to think about their financial wellbeing at all.

This problem is exacerbated amongst women, who are 50% more likely to feel unprepared for the future financially than men.

It’s easy to see why. By the time women are in their 50s, they have saved £56,000 for their retirement, just half the amount the £112,000 the average man has saved.¹

The gender pay gap

A number of reasons are behind this complex problem, including the gender pay gap and the higher proportion of women in part-time work or juggling multiple jobs.

Women and men are likely to earn the same in their 20s, but by the time they reach their 40s, women should expect to earn 13% less than men, which widens to 16% by their 50s, research from the Chartered Insurance Institute (CII) shows.

It goes without saying that the less money you have in the first place, the less you will be able to save – no matter your spending habits.

Financial confidence

There are also more pronounced issues around financial knowledge, understanding and confidence amongst women. This trend surfaces early on in life, despite girls and young women outperforming boys and young men in early education.

More than half of women in their 20s say they don’t understand enough about the pensions landscape to make a retirement savings plan, compared to 38% of men, CII reports. On average, men are likely to have 60% more money saved up in their 30s.

Nearly three-quarters of women in their 50s also think they should be saving more for retirement, which falls to 59% of men.

Again, it’s important to highlight how issues around financial security and saving for retirement are exacerbated in women but are still prevalent with men.

Saving for the future shouldn’t be difficult

Saving for your future shouldn’t be complicated, but for many it is. The simple volume of options available to consumers just trying to protect their money and grow it for the future can be off putting. The jargon can complicate things further.

People who feel out of their depth financially can also avoid looking to plan for the future to protect themselves in the short-term. The good news is that if you start early, saving for your pension doesn’t need to be a heavy burden.  

To maintain your standard of living in retirement, it’s generally thought that you need to have an income worth two-thirds of your final salary. After all, you won’t be paying to commute, you’ll hopefully have paid off the mortgage and your kids should – in theory – be independent.

A comfortable retirement with a few of life’s luxuries here and there will require around £26,000 a year. If you’ve been eyeing up some long-haul holidays and a new car every five years, you’d better make that £39,000.²

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For a gross income of £26,000, you’re going to need a pension pot worth a minimum of £520,000 – assuming you’ll have no state pension. You’re going to need £750,000 for £39,000 a year.

There’s logic behind this. It’s reasonable to expect an average annualised return of around 5% from a balanced and diversified portfolio. If you look to withdraw 5% a year, you’ll avoid depleting the nominal value of your pension over time.

How much do I need to save a month?

Whilst the headline figures are big, the earlier you start the less of an impact this will have on your monthly income.

A couple in their 20s will need to save £131 a month for a £26,000 annual income, which increases to £198 a month if you leave it to your 30s.

Leave it any later and the costs really start to rise, with a couple in their 40s having to save £338 a month and those in their 50s saving £633.

Five tips to boost your pension pot

We firmly believe that men and women should be given the same opportunities when it comes to saving for their future, but there are some simple ways everyone can maximise their savings pot.

After all, after years of sacrifice, you want to know you can enjoy your retirement by doing the things you’ve always dreamed of – whether that’s fishing in the Highlands, making costumes for your grandchildren or travelling the world.

The earlier you start the better

The earlier you start the less of a burden your pension savings will be on your monthly budget. Still, it’s never the wrong time to start saving for your future. Whether you’re just starting to save for your retirement, want to supplement a workplace scheme, or want to increase your contributions, the more you can give today the more your future self will thank you.

Work out your budget and try to stick to it

Take the time to understand where you are and where you want to be. Then work out what it’s going to take to get there and set a target for yourself. The more realistic it is, the more you will probably be able to save over the long-term. But be honest with yourself, if you get a bonus or pay rise and think you should increase your contributions, do it.

Make the most of your tax relief

Pension savers are rewarded by the government for planning for the future with generous tax relief. You can get tax relief on your contributions relative to your tax band. If you pay 20% tax, you essentially pay £8,000 for an overall £10,000 contribution. If you’re a higher rate or additional rate taxpayer you can claim back more, don’t forget to claim for it from HMRC.

Supplement your retirement savings with an ISA

Pension savers can only save £40,000 in their pension each year, or the value of their salary – whichever is lower. If you have money sitting around that you want to put to work for your future, look to maximise your returns with a stocks and shares ISA. You can invest up to £20,000 a year and any growth in the value of your investments and any income can grow tax-free. ISAs also more flexible than a pension.

Keep management and platform costs low

After sacrificing that extra dinner with friends and talking yourself out of buying that new top, you don’t want to see your returns eaten into by expensive or surprise platform fees. Make sure you know exactly what you’ll be paying in fees and charges before you start investing, as this can seriously dent your returns over the long-term.

¹Aegon

²Which?

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