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The gender pension gap – what can women do to better their retirement?

We take a closer look at the gender pension gap and what women can do to help better their retirement.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Women’s retirement income is much lower than men’s on average. In fact, recent research puts the gender pension gap at a whopping 37.9%.

There are lots of reasons for this, most notably that on average women earn less than men. The same research puts the gender pay gap at around 15.5%.

But why does 15.5% less pay equate to women retiring with a pension worth 37.9% less?

The reason is once women enter the workforce, lots of them face several hurdles that impede their career progress and ability to build a decent income from their state and workplace pensions.

Although this article can provide helpful tips, it isn’t personal advice. If you’re not sure what the best course of action is for you, ask for financial advice. Your pension is designed for later life and usually can’t be accessed until age 55 (rising to 57 in 2028). Pension and tax rules can change, and any benefits will depend on your circumstances.

State Pension

Recent State Pension reform has been good for women.

The introduction of the new state pension in 2016 has resulted in women on average receiving £164.74 per week in comparison to £170.50 for men, as of August 2021. If you look at women who retired before this on the basic State Pension, they receive just £145.87 in comparison to £172.64 for men.

This is good news for women retiring under the new terms. But there are still huge numbers of older women claiming lower amounts under the old system and potentially struggling financially as a result.

It’s a key reason why women make up the overwhelming number of people claiming Pension Credit. This is a benefit that tops up income to around £177 a week if you’re single and £270 if you’re in a couple. It also acts as a gateway to other benefits like help with bills and NHS costs.

But it’s still an under-claimed benefit. Only about two-thirds of those eligible for it claim it. This means a lot of women are missing out on vital pension income. This could be for a variety of reasons – for example, lots believe you can’t claim Pension Credit if you own your own home or have savings.

Neither of these are true, so it’s important to check if you qualify.

Pensions in the workplace

Auto-enrolment has been another significant boost to women’s retirement prospects in recent years.

Under current rules, anyone over 22 and earning over £10,000 each year is auto-enrolled into a workplace pension. This has brought in a lot of women who didn’t previously have access to a workplace pension. They’ll now benefit from an employer contribution and tax relief from the government in addition to their own contribution. It can give women a good start in their retirement planning journey, though they’ll need to assess their contributions and investments regularly.

Over the long term their investment should grow, and more women should retire with a decent pension. Although, the value of your pension can rise and fall in value and you could get back less than you put in.

This is hugely positive. But women’s pension planning starts to hit road bumps when they leave the workforce to have children. Some don’t return to work. And those who do often return on a part-time basis, which means they contribute less. In some cases, they might not earn enough to be auto-enrolled again which can deal their pension prospects a further blow.

Women also face challenges towards the end of their career with many leaving the workforce to look after elderly relatives. Menopause is also a huge potential disrupter to women’s working patterns with many women leaving the workforce because of severe symptoms like anxiety and depression.

Divorce is another factor that can potentially de-rail women’s retirement planning. If your partner has a much better pension than you, it can be very tempting to rely on that. However, if you were to split up you could find yourself approaching retirement with very little in the way of retirement income.

Pension assets can be significant and yet they’re not discussed in divorce as often as they should be. This can lead to lots of women missing out.

What can you do?

While women do have significant obstacles to navigate, improvements to the State Pension and auto-enrolment mean more women will generally enter retirement with some pension provision.

The rise in flexible working brought about by the pandemic could also give women’s retirement prospects a significant boost. Being able to work from home helps families balance their various responsibilities and help more women stay in the workforce.

We hope the valuable lessons learned during the pandemic continue to hold and employers remain willing to let people work more flexibly.

Consistency is key. If we can help more women stay in work then they’ll benefit from a better pension. And that way we can really start tackling the pension gap.

Top tips for pension planning

  1. Wherever possible keep up your pension contributions.
  2. It can be easy to stop or cut back on your pension contributions when money is tight. But consistent long-term contributions are key in building a good pension.

  3. Make the most of your employer contributions.
  4. While lots of employers contribute the minimum amount allowed under auto-enrolment, there are many who are willing to pay in more if you do. This can add up to a significant amount of money over time. It’s worth checking if they do.

  5. Claim Child Benefit in your name.
  6. Many women miss out on valuable credits towards their State Pension because they either don’t claim Child Benefit, or their partner does it in their name. If you’re staying at home to look after children, you can qualify for National Insurance credits which will boost the amount of State Pension you get.

  7. Don’t rely on your partner’s pension.
  8. It can be tempting to rely on your partner’s pension, especially if they have good pension provision. But if you split up, you could be left with very little to live on in retirement. Wherever possible build your own pension wealth.

  9. Check your National Insurance record.
  10. You currently need a minimum of ten years NI credits to qualify for State Pension and 35 years’ worth will get you a full State Pension. There might be years where you have been out of the workforce or living overseas where you haven’t qualified for NI credits. The good news is you can top up your income by purchasing voluntary credits to fill these gaps.

Check your State Pension entitlement

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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