As women, we’re no strangers to a ‘gap’ or two - the gender pay gap, the investing gap, the authority gap - the list goes on. These economic gaps that impact us throughout our lives often compound to form the biggest gap of all - the gender pension gap.
Analysis by PensionBee highlights a gap of 38% between male and female pension pots in the UK. It’s clear women are hugely underpensioned, leaving us with less financial freedom when it comes to how and when we retire. Women in the UK also tend to live longer, on average, than their male counterparts so if anything, we need more pension wealth to sustain longer lives but we’re often forced by circumstance to settle for less.
How does the gender pension gap happen?
The gender pension gap, in some ways, represents the culmination of many of the other wealth gaps that women face over the course of a lifetime. But there are many factors that impact women’s financial security in retirement.
The first of these is the gender pay gap. Workplace pensions tend to be saved as a percentage of earnings and so the natural consequence of women earning less over their working life is a smaller pension pot. This is further impacted by a loss of opportunity for that money to compound over decades, creating an even bigger difference.
A major contributing factor to the gender pay gap is the fact that women are more likely to take career breaks or reduce working hours during some of their key earning years. This could be due to taking parental leave, part-time working or taking a career break in order to look after children. In the same way that these usually equate to a loss of earnings in the moment, they also result in a period of time when women are paying in less to a pension or not at all.
There are other factors at play too. Historic differences in the State Pension age have left many women in the UK ill-prepared for retirement - something the Women Against State Pension Inequality, or WASPI, movement have been campaigning about for years.
And finally, despite pensions usually being the second biggest financial asset after a house they’re often not considered in divorce proceedings, leaving women with a pension shortfall in later life.
What needs to change?
It’s clear there are political and societal changes that need to happen in order to close the gender pension gap. The biggest focus for our government and institutions should be on closing the gender pay gap. If you want to do your bit to change the broader picture, consider supporting flexible working and affordable childcare campaigns.
How can we protect ourselves from the gender pension gap?
Aside from supporting broader policy change, there are some practical things that we can all do.
1. Discuss pensions with your partner
There are many things to consider when deciding to start a family. While pensions might be pretty low on your agenda, it’s really important to think about. While you’re taking time off work, can you make pension contributions fair between you and your partner? This could mean your partner temporarily contributes to your pension on your behalf. Or, you plan to increase your contributions when you return to work while they cover other family costs.
2. Keep track of your pension pots, and be aware of how much you’ve saved
If you move jobs several times during your career, you’ll likely have different pension pots with different providers. These can be easy to lose track of. The estimated combined value of lost pension pots in the UK is over £50 billion, but it can be simple to find your old pensions with just a few key details. Reducing the gap starts with making sure that you know where your pensions are. Then, you might decide to combine them all into one pot, to make it easier to keep track of your total retirement savings.
3. Consider topping up your pension using any disposable income
If you’ve fallen behind on your pension contributions, consider any additional money that you could use to top it up. It could be a lump sum like an inheritance, an annual bonus or additional income from a pay rise or side hustle.
4. Start saving into a pension for your children
When you’re considering saving for your child’s future, it might be worth thinking about saving into a Junior SIPP. This is a pension that you can pay into for your child until they’re 18, which gives the huge advantage of time. They’ll have longer to save and they’ll also benefit from compound interest over their lifetime.
5. Make sure pensions are on the table if you divorce
Amongst the various stresses and challenges of ending a marriage, it’s easy for pensions to be left out of negotiations when splitting assets. But it’s really important that they aren’t. Factoring in an estranged spouse’s pension can be a taboo topic as some people feel that pension wealth should belong to the person who earned it. Put simply: if your partner couldn’t have earned their pension without relying on your unpaid labour in the home, it should be considered a joint financial asset and one that should be on the table to divide if you’re divorcing. There are several ways pensions can be split in divorce, you can find out about them in this PensionBee video.
6. Talk to your female friends and relatives about pensions
Finally, given how little the gender pension gap is discussed, you can do all of the women you care about a huge favour by starting a conversation today and raising awareness of this important issue.
Clare is the Creator of @myfrugalyear, an Instagram account which tackles money, motherhood, mental health and family life and has a community of over 115,000 people. She’s also the Editor of Money (for humans) and Author of Real Life Money (Hachette 2020) and Five Steps to Financial Wellbeing (Hachette 2022). She’s a prominent voice within the personal finance and lifestyle design space and approaches the topic of finance with care and compassion.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
