Women don’t just get hit by the gender pay gap – we also get walloped by the gender pension gap. After years of working for lower pay, we’re left with smaller pension pots. We’re not talking pennies either, but a great big yawning gap.
Research by PensionBee revealed a 31% difference between male and female pension pots. That’s nearly a third, and the inequality increases with age. PensionBee found that by the time women reached their 50s, men have a pension pot that’s almost twice the size, at just over £31,250 for women and nearly £53,450 for men. Yet women live longer than men, so if anything we actually need bigger pension pots to last for longer!
Writing about the gender pension gap made me cross. So for International Women’s Day, I’d encourage you to get angry about pension savings, then think about how to get even.
Women’s pension savings are hit while we’re working…
Fundamentally, if women earn less, they have less money available to pay into a pension. If you don’t have as many pounds in the first place, you can’t put as many into retirement savings.
Contributions to pensions at work are normally based on a percentage of salary. On lower pay? You’ll pay less into your pension and see smaller sums added by your employer and by tax relief. The good news about pensions is that for every £100 a basic rate taxpayer puts into a pension, the taxman will add an extra £25 on top. If you’ve been auto-enrolled into a workplace pension, then from April 2019 you’ll have to pay at least 4% of qualifying earnings into a pension, topped up by at least 3% from your employer and 1% from the tax man.
Tax relief on pensions is more attractive for higher-rate taxpayers, so women who don’t break into higher tax brackets may be less inclined to pay into a pension. Anyone lucky enough to pay higher rate tax can claim an extra 20% tax relief via their tax return, or an extra 25% tax relief for additional rate taxpayers.
…and hit again if we stop
But women’s pensions don’t just get hit while we’re working. Our pension pots also get hammered when we stop. Women are more likely than men to take time off work to look after children or care for sick or ageing relatives. Our pension pots can then get slashed three ways by the ‘motherhood penalty’.
Many women stop contributions while on maternity leave, in an attempt to make ends meet. It can be hard to restart pension contributions if you don’t return to the workforce – because if you don’t have cash coming in, what can you pay into a pension? Long career gaps, with little or no pension saving for years, are a massive disadvantage for women.
Women who choose to return to work part-time get lower salaries in exchange – and so make lower pension contributions. Of the 8.4 million part-time employees in the UK, nearly 3/4 are women, according to labour market stats from the ONS, meaning women are disproportionately affected. Plus, anyone whose promotion prospects are limited by career breaks or part-time roles will then miss out on increased salaries and increased pension payments.
One spark of light is that the gender wealth gap is beginning to close at younger ages. Recent figures from the ONS showed that women aged 18-44 actually had larger estates than men of the same age. Average personal wealth was £175,200 for women compared to £152,000 for men, looking over 2014-2016. Men still had estates worth more than women for all other age groups.
Paying more into a pension early in your career, when you have any extra money, will help narrow the gender pension gap come retirement.
Fight back on the pensions front
Faced with financial inequality, it’s crucial for women to get more pounds into their pensions. Here’s my seven point action plan to narrow your own gender pension gap:
1. Grab free money
When you pay into a workplace pension, your employer has to add money on your behalf, plus you get tax relief on top. Don’t opt out of a workplace pension because retirement seems a lifetime away – it’s like turning down a pay rise.
2. Start saving early
Time is the magic weapon when it comes to pension saving, as those early payments have longer to benefit from compound interest.
3. Whack up your contributions
Stash extra cash into a pension while you can, especially if you’re ever thinking of having kids. Get a pay rise, inheritance or windfall? Bump up your pension payments.
4. Check out pension arrangements during maternity leave
Some employers will continue paying into your workplace pension while you’re on maternity leave, even after maternity pay stops. Make sure you don’t miss out!
5. Register for Child Benefit after having children
Even if you’re not entitled to payments because your partner earns over £60,000 a year, it’s worth doing. Otherwise, you could miss out on National Insurance credits towards a chunk of your State Pension.
6. Build pension saving into the family budget
If you’re part of a couple, and one person takes time out for caring responsibilities (man or woman!), plan how to fund their pension out of family income. Even non-taxpayers can save up to £2,880 a year into a pension and get £720 added by the tax man. Is there enough money for the earner to pay into the non-earner’s pension?
7. Make the most of your pension money
Track down pension pots from previous employers and any private pensions, then check where your money’s invested and how much it costs. If you have several years to retirement, you can afford to choose investments that take more risk in the hope of higher returns. Plus, switching to lower cost options will stop your retirement savings being eaten away by charges.
So, if you want to strike a blow for women’s equality, don’t burn your bra. Negotiate a pay rise, bump up your pension contributions and check your pension costs. Your future self will thank you, when you can afford to retire, rather than working till you drop.
Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less.
