You have likely heard of the gender pay gap in the UK, which stood at 7.0% amongst full-time employees in April 2024. However, a gap also exists between the average retirement incomes of British men and women.
Private pensions, for instance, have a 35% gender gap. This is considerable despite efforts by the government to close the gap (e.g. introducing Automatic Enrolment in 2012). This is before examining other retirement income streams, like the State Pension and workplace pensions.
Below, our Teesside financial advisers explain why women still suffer lower average retirement incomes than men. We then offer three ideas to help female readers address some of these challenges and build a robust retirement plan.
Why is there a gender pension gap?
Part of the issue lies in the gender pay gap. Since women earn less than men on average, it is harder to keep up with their male counterparts when making pension contributions. The result is often a smaller pension pot at the point of retirement.
Historically, women have also had different working patterns. 74% of women are still the primary carers of children, often taking time off work to raise their dependents. This can make it even more difficult to save for retirement from a pay packet.
Women are more likely to lose out on pensions in divorce. 42% of wealth in the UK is held in pensions. However, retirement savings are often neglected in divorce cases, potentially leaving women worse off in retirement compared to their ex-husbands.
What can women do to try and close the gender pension gap? Here are four ideas:
#1 Fight for your pay
The more you earn, the more you can save towards retirement (assuming your expenses stay the same). However, in one HR survey, only 26% of underpaid women have asked for a pay rise. This compares to 36% of underpaid men.
Consider whether it is time to approach your employer. If so, craft a plan about how you will ask. For instance, how much value have you provided the organisation over the last year? How does your pay compare to similar roles elsewhere on the market?
Prepare your negotiation carefully and consider your options if you get a flat “no”.
#2 Maximise your State Pension
Men tend to receive more State Pension income than women. Remember, most people build up their State Pensions by making National Insurance (NI) contributions from their paycheque. This is where women often get shortchanged since they are more likely to work part-time or take career breaks to raise children.
If you want to be a stay-at-home parent, make sure you keep building up your State Pension by claiming credits. You are entitled to this if you are registered for Child Benefit for a child under 12, or if you are a registered foster carer.
Also, check your NI record. If you have incomplete or missing years on your record, it could be helpful to make a voluntary contribution to help ensure you build up a full record by the time you retire (i.e. 35 qualifying years of NI contributions).
#3 Save as early as possible
The sooner you start contributing to your pension, the more it can benefit from the power of compound interest. It also gives more time for your investments to recover from market crashes.
If investing seems intimidating, take confidence from this interesting statistic: female investors achieve, on average, 1.8% higher returns than men. This is partly because women are more likely to diversify their holdings, avoid speculative assets and take a long-term approach.
Be careful not to assume you can rely on your partner’s pension. Having your own pension(s) will open up more financial freedom and opportunities in retirement. Also, it gives you a safety net if things go wrong – perhaps due to divorce or early death.
There are also tax advantages to having your own pension. For instance, each person gets their own Annual Allowance. This allows an individual to contribute up to £60,000 to their pensions free of tax each tax year. Any money that you personally contribute to your pension will also benefit from tax relief, albeit limited to 100% of their relevant earnings. If a husband and wife both maximise their Annual Allowances, their household could effectively double this tax benefit.
Consider how much money you might need in retirement – either as a single person or in a committed relationship. Are you on track to achieve your “target number”? Here, it might help to seek financial advice to ensure you have the best possible information and plan.
To discuss your own financial plan, please get in touch to arrange a free, no-commitment consultation with an adviser here in Cumbria.
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.