Navigating the gender pension gap

The gender pension gap can have a significant impact on the finances and lives of women, often leaving them at a disadvantage compared to their male counterparts. According to a recent report, a 40.3% gap in pension savings persists between women and men, meaning an average difference in annual pension income of around £7,500 by gender.

Why is there a gap?

The gender pension gap is the difference in retirement income between men and women. While the causes are complex, they generally boil down to two major factors.

Firstly, the gender pay gap, with women earning 15.5% less than their male counterparts on average, means women have less income to put into their pension pots. Seeing as the amount people save for a pension is normally a percentage of their salary, women quickly find themselves at a disadvantage.

The gender pay gap also affects women’s’ ability to pay off debts at the same rate as males, with one of the most notable cases being student debts. As they have less income than men, women need longer to pay off the same debt. For women who started university after 2006/2007, it can take an average of 5 years longer to pay off student debts. As they can pay off their debts sooner, men are much freer to start their pension savings earlier, and have more money to put into their pension pots.

The second factor is the differing impact that life events can have on women compared to men. A prime example is motherhood. In the UK, women are permitted more time off work after having a baby (maternity leave) than men, allowed up to 52 weeks, compared to a maximum of 2 weeks paternity leave for men. Taking maternity leave can have a significant career impact, with women not earning their full salaries, as well due to being out of employment for an extended period of time, having the potential to influence negative career shifts. During maternity leave, an employer has to cover 90% of a salary for 6 weeks, however for the subsequent 33 weeks, they only need to pay an employee a maximum of £156.66 a week. Overall, this amounts to women generally earning less than their male counterparts during these significant life events, affording them less income to put in their pensions.

These life events can also have an impact on state pensions. State pensions are assessed based on the number of years worked, as well any National Insurance credits received during time off. These credits, however, are only accessible if the entitlement criteria are fulfilled and the person has actively claimed those credits. Those are very specific ifs, which mean that as men are more likely to be in continuous full-time employment, they received around £30 more per week than women on the pre-2016 State pension, earning £163.76 and £136.07 respectively.

Can this change?

Fixing the gender pension gap is a crucial initiative to promote equality and financial security, as well as reducing retirement poverty, an issue which disproportionally affects women.

In the short-term, the answer is a hesitant no. The gender pay gap is unfortunately so institutionalised, that fixing it will be a long and arduous process. Nevertheless, there are changes coming and measures that can be taken that will go a long way to reducing the gap. For instance, changes in the State Pension post-2016, designed to equalise available benefits, mean that per week, men will receive £160.09 and women £152.90. Unfortunately, according to a report, the full effects of these changes won’t be felt until 2041.

From a private sector perspective, helpful company reforms are slowly starting to come into place, include improving affordable childcare, allowing more flexible work arrangements during parental leave and in later life, ensuring equitable pension rights are specified during divorce proceedings etc. This would mediate disadvantages faced by women during the aforementioned significant life events.

What can you do now?

There are number of actions that women can take in order to reduce the gap for themselves and get a bigger and fairer piece of the pie.

1. Stay on top of your pension savings

Setting a specific retirement goal and keeping an eye on your savings will reduce stress and allow you to feel more confident about your future.

2. Make sure you know your stuff

Doing your own research and educating yourself on pension management will make you feel more confident and give you a greater sense of control about your retirement prospects.

3. See if you can get more out of your workplace pension plan

Enrolling in a workplace pension plan means your employer is obligated to pay a minimum of 3% of your earnings into your pension. However, some employers will pay more as a results of benefits packages. As such, enquiring about this and checking your eligibility could massively boost your pension income.

4. Start as early as possible

Every little bit added to your pension will make a difference later on. As such, the earlier you start, the better your position will be in retirement.

5. Speaking to a financial advisor

The gender pension gap is a prominent topic in finance and investment banking. A financial advisor will be knowledgeable about the topic and can help you comfortably build up your pension.

Talk to one of our expert financial advisors today, to discuss your pension planning and achieving your ideal retirement outlook.