The gender pension gap is a growing issue, with women’s retirement savings consistently falling behind men’s. On average, by the time women reach retirement, their pension pots are 55% smaller than men’s. Typically, this gap often begins early in a woman’s career and only widens over time due to several key factors.
This International Women’s Day, it is important to understand what’s driving the gap and how women can take steps to close it.
Key Drivers Behind the Gender Pension Gap
As it stands the current pension system can result in several obstacles for women when it comes to saving for retirement, including pay disparities, taking time off to care for children, and working part-time. These factors all contribute to a gender pension gap that starts early and often continues to grow over time.
The Gender Pay Gap
The gender pay gap is one of the most significant drivers of the pension disparity between men and women. While the gap has narrowed over time, women still earn less than men at nearly every stage of their careers. Research by Legal & General shows that women start their careers with a pension gap, which can double by the time they’re in their 40s. By the time women reach their 50s, the gap can be as much as 51%. When it comes to retirement, women’s pension pots are, on average, 55% smaller than men’s.
However, the good news is that younger women are starting to save for retirement earlier however, the ongoing pay gap means women typically save less into their pensions over their working lives.
- Childcare and Career Breaks
For many women, the pension gap widens significantly after they have children. Women are more likely to take time off work or reduce their hours to care for children, while men’s pensions tend to remain unaffected by their involvement in childcare.
The same research by Legal & General shows that 37% of mothers have left their jobs to manage childcare, compared to just 18% of fathers.
This time away from the workforce means lower earnings and fewer contributions to pensions, which can have a long-term impact on their retirement savings.
- Part-Time Work and Lower Confidence in Financial Decisions
Women are more likely to work part-time or take career breaks compared to men, leading to lower earnings and, in turn, lower pension contributions.
This part-time work is a major contributor to the gender pension gap.
On top of that, women tend to report lower confidence when it comes to making financial decisions, including saving and investing for retirement. This lack of confidence can stop women from taking the necessary steps to ensure they’re building enough for the future.
Divorce and its Impact on Women’s Pensions
Divorce is another critical factor that can impact women’s pensions. In many cases, women waive their right to a portion of their partner’s pension, even though they may be entitled to it. Divorce settlements often overlook pensions, leaving women with a much smaller retirement income.
The Legal & General report shows that only 7% of people seek financial advice during divorce, which means many women miss out on the opportunity to include pensions in their settlement.
Steps Women Can Take to Close the Pension Gap
- Save more before starting a family
If you planning to have children, consider increase pension contributions during the early working years. This way, you will build a stronger pension pot before taking time off for childcare. If you have a partner, discuss how you can share the financial impact, such as by splitting childcare costs or having your partner contribute to your pension while on parental leave.
- Start saving early and save more
The earlier you start saving, the better.
By saving in your 20s, you give your money more time to grow.
Women may need to contribute more to their pensions than men to offset the pay gap and any career breaks for childcare. Even small contributions early on can make a significant difference in the long run.
- Be aware of pensions in divorce
Divorce can have a lasting impact on pension savings. It is essential to factor pensions into divorce settlements to ensure you are not leaving money on the table.
This can cost women significantly in lost retirement income if pensions are not properly considered. Always ensure pensions are part of any discussions during divorce proceedings.
- Keep track of pension contributions
It is easy to lose track of pensions, especially if you have had multiple jobs throughout your career.
Use the government’s pension tracing service to find any lost pensions and consider consolidating them for easier management.
Regularly check your pension details to make sure they’re up to date, including the beneficiary information.
- Factor pensions into childcare planning
While raising a family is a busy and demanding time, it is important to keep your pension in mind. Have open discussions with your partner about how to share the financial impact of childcare, such as splitting costs or contributing to your pension during parental leave. This can help ensure you’re not sacrificing your future financial security.
- Check State Pension entitlement
If taken time off work to care for children or loved ones, check your State Pension entitlement to ensure your National Insurance contributions are up to date.
If there are any gaps, consider making additional contributions before the 5 April 2025 deadline to fill those gaps and secure your full entitlement.
The Benefit of Good Financial Advice
In the face of this gender pension gap, it is more important than ever for women to seek expert financial advice. A Financial Planner can help you take a more proactive approach to managing your retirement savings. We can provide personalised strategies that are tailored to your unique financial situation, helping you navigate complex issues such as salary gaps, career breaks, and pension contributions.
A Financial Planner can guide you on how to make the most of your pension, whether it is by recommending how much to contribute, advising on investment options, or helping you take advantage of employer pension schemes. Advice can be invaluable during major life changes such as starting a family or going through a divorce, helping you make informed decisions that secure your financial future.
Additionally, a Financial Planner can help you understand the intricacies of pensions during divorce proceedings, ensuring you’re not missing out on valuable pension entitlements. This type of support can be particularly important when navigating financial matters that can impact long-term financial security.
Conclusion
The gender pension gap is a significant issue, but it is one that can be addressed with awareness, action, and expert advice. From saving early and contributing more to pensions, to considering pensions during life events like divorce and childcare planning, women can take steps to close the gap and work towards a more financially equal retirement.
Empowering women with the right information, support, and confidence is key to ensuring they can achieve pensions equality.
If you are unsure about how to approach your pension planning, consulting a Financial Planner is a step in the right direction to help secure a more comfortable and equal retirement.
Sources:
Scottish Widows Women & Retirement Report 2023
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References to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of publication. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.
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