- New research from the Pensions Policy Institute (PPI) shows women aged 55 to 59 have around half (54%) the pension wealth of men of the same age
- The PPI attributes 39% of that gap to the way women’s working patterns change during their life, and 19% to the gender pay gap
- AJ Bell Money Matters research found that the gender pensions gap begins to open up at the age of 28
- It also found that women do not tend to prioritise their pensions until later in life than men – hitting their retirement prospects
- Five ways women can boost pension contributions, even if their working patterns change
Sarah Coles, head of personal finance at AJ Bell, comments:
“A new report from the PPI makes for some stark reading, showing that women aged between 55 and 59 have around half the pension wealth of men of the same age.
“A major chunk of the gender pensions gap is carved out by the part-time penalty women pay for working more flexibility around caring responsibilities. The impact doesn’t fade away completely when they return to work either, because women still face the gender pay gap, which makes it far harder to build the pension pot they need for the retirement they want.
“The report attributed the majority of the gender pensions gap to the way women’s working patterns change during their careers. Women are significantly more likely to work part-time for a period than men. In many cases, this comes as a result of having children and taking on caring responsibilities. It’s why separate AJ Bell Money Matters research identified that the gender pensions gap starts to open up at the age of 28.
“When women cut back their hours, their pensions take a hit. Some will be contributing a percentage of a much smaller wage, whereas others will feel they can’t afford to make contributions at all. AJ Bell’s research found that financial pressures push pension savings down the priority list at this stage in life – so only 8% of women prioritise their retirement savings, compared to 22% of men.
“This is exacerbated by the gender pay gap when women return to work. Women working full-time are paid, on average, 6.9% less than men, but the gap widens as we get older. At the ages of 16 and 17, women earn slightly more than men. By the time they reach the 22 to 29 age bracket, men have started to edge ahead, with a pay gap of 0.9%. But this accelerates through the rest of their working lives, to hit 12.5% in their 50s.
“That’s a sizeable difference in take home pay, but it also means that women are paying less into their pension each month, which has a snowball effect on their pot over time. Government data shows that in retirement the income gap is widest of all, with those aged 60 and over facing a gap of 12.6%.
“The gender pension gap can’t be considered in isolation, because so many people will retire as part of a couple, and in many cases it’s a partner of the opposite sex. However, being so reliant on a partner runs the risk of divorce, separation or bereavement pushing some women into difficulties later in life. It also means single people can struggle, especially if they are divorced or never married.
Five steps to prevent flexible work and lower pay derailing your pension
- Ask to be automatically enrolled into your workplace pension
“If you’re making less than £10,000 a year with any one employer, you won’t be automatically enrolled into the pension scheme. As well as those on lower salaries, it affects those working part-time. However, if you earn between £6,240 and £10,000 with one employer you have the right to opt in and be treated like any other member of the scheme, so when you pay in you get employer contributions too. Those who make less than £6,240 can ask to join a pension scheme through work, but won’t necessarily get employer contributions, so it’s important to check what’s on offer.
- Try not to stop during maternity leave
“If you go on maternity leave, it can be tempting to pause pension contributions, because money tends to be tight. However, if you can keep up payments, you only have to pay a percentage of the actual maternity pay you’re getting, while your employer needs to keep making the same contributions as before.
- Consider contributions as a couple
“If one of you stops work for a period or moves into a part-time role, you will already be having conversations around how you will pay vital bills. It’s worth adding your pension to the conversation and considering whether there’s a way to maintain payments. If you’re not earning, your partner can pay in up to £2,880 a year and it will be topped up by the government to £3,600.
- Pledge to increase contributions
“If you can’t afford higher contributions today, pledge to pay more in when you get a pay rise or work longer hours. One way to make sure this happens automatically is to work on the basis of paying in a certain percentage of salary – so it automatically rises when your income does. However, it’s also worth revisiting your payments with each pay rise, to see whether there’s room in your budget to increase it. AJ Bell Money Matters research into the gender pension gap shows that men are more likely to pay in a higher percentage of their salary: 36% of men are contributing 6% to 11% of their salary, compared to just 29% of women.
- Use one-off payments to boost your pension
“Men are also more likely to use a one-off payment (like a bonus) to power their pension than women. AJ Bell’s research showed 44% would use one-off payments in this way, compared to 36% of women. It’s easy to mentally spend your bonus several times over, but if you’re due to get one, it’s worth considering pension payments among your options.”
