Pensions: the gender gap

    30 September 2017

    It’s a fact of life that women save less for their old age than men do — and it’s the facts of life, biologically speaking, that are at the root of the problem.

    The average woman has £24,900 tucked away at retirement, but the average man has almost three times more at £73,600, according to the pension company Aegon. Data from Scottish Widows says women save £50 a month less than men, at £128 and £178 respectively, but almost a quarter do not save anything at all. And the result is that women very often have to live on lower incomes in their later years.

    The chief reason for this shortfall in retirement saving is, of course, that women are also mothers and — predominantly — caregivers. As such, they are more likely to have taken time out from formal employment to raise children and look after ill or elderly family members. Many sacrifice pay and career progression in the process, to the detriment of their long-term prosperity.

    Maike Currie, investment director for personal investing at Fidelity International, says: ‘Women typically live longer than men, so if a longer life with less money than your male counterparts doesn’t sound like the kind of retirement you dreamed of, it’s prudent to examine each of the three typical sources of retirement income — the state pension, a workplace pension, any other private savings — and address any glaring gaps.’

    The state pension, currently £159.55 a week, may not provide enough for comfortable retirement, but it is still an important element of overall retirement planning. Many retirees rely on this guaranteed income to cover basic living expenses, so it’s important to understand how it works.

    Currie explains: ‘Your income from this pot will depend on the number of National Insurance contributions (or credits) you clock up over your career. Under the new single-tier state pension system, you need a minimum of ten years of contributions to qualify for any state pension benefit and 35 years’ worth of NI credits to qualify for a full basic state pension; it used to be 30 under the old system.’ She says it’s critical to check your NI record, particularly if you have taken career breaks. You can do this by visiting

    Workplace pensions are effectively free money, since your employer also contributes to your retirement savings and in some cases matches any contributions you make. However, because many workplace pensions invest in standardised funds designed to cater for a wide spectrum of needs, it’s important to check how yours is invested and whether it’s appropriate for you. You might want to consider switching to a fund more likely to help you reach your retirement goals, but you’ll need expert financial advice to do so.

    As for private savings, ‘every woman should have her own savings pot, separate from her partner’s or family’s savings,’ says Currie. ‘It’s important for women to invest and save in their own right.’

    Even if you stop working, you can still save into a pension. You can pay in up to £2,880 a year, which tax relief can boost to £3,600.

    There are also certain life events when it becomes particularly important for a woman to consider retirement planning — especially becoming a mother. Kate Smith, head of pensions at Aegon, says: ‘Whether you are a stay-at-home, single, working, part-time working, self-employed, married, divorced, widowed mum — there are many combinations — one thing is for sure: whatever your age, your pension savings are likely to stall as a consequence of motherhood. Gaps in pension savings history can leave you worse off in retirement — but for most women this is unavoidable. For example, taking a full year off work on maternity leave and stopping or reducing pension contributions to a workplace pension could leave you needing to work longer to make up the shortfall.’

    Before you start maternity leave, Smith suggests finding out how much you have saved in your pension, what your state pension age will be, and whether your employer provides maternity pay higher than the statutory level. If you can, consider increasing your pension contributions before your maternity leave, particularly if your employer matches your contributions.

    Smith advises against leaving your workplace pension scheme while on maternity leave. You only need to make contributions based on your actual earnings, which will help make them more affordable. And when you return to work, you should consider paying additional contributions to compensate for the period when your contributions were lower. Overall, it’s wise to review your pension contributions when you return to work, and to do so again when your children reach school age if you no longer need to pay nursery fees.

    Michelle Cracknell, chief executive of the Pensions Advisory Service, adds that when your child turns three, you may be eligible for government help through free childcare hours. ‘If this gives you some extra money, it’s a good opportunity to put some of it into pension savings.’

    And if you give up work to look after children, it’s important that you register for Child Benefit even if your partner’s earnings are such that you opt not to take the benefit. The January 2013 introduction of the ‘High Income Child Benefit Tax Charge’ means couples in which one partner earns more than £60,000 per year have the value of their Child Benefit wiped out by tax. As a result, growing numbers of mothers in higher-income households who started a family after January 2013 have declined to claim Child Benefit at all — meaning they miss out on NI credits towards their state pension. ‘Each year missed could cost 1/35 of the value of the state pension, around £231 per year,’ according to a Scottish Widows research report.

    It’s also worth remembering that grandparents caring for grandchildren under the age of 12 could qualify for National Insurance credits that can top up their state pension.

    Divorce also often has an impact of women’s retirement savings. Divorced and separated women tend to set aside far less than married women do.

    ‘Pensions, just like other assets, such as houses and ISAs, can be taken into account for financial settlements,’ explains Kate Smith. ‘It’s common for women with school-age children to keep the family home, and in return their ex keeps his pension intact. If that happens you will lose the right to any spouse’s pension. Although this may work well in the shorter term, it could limit your plans for retirement, if you don’t take pension saving into your own hands as soon as possible. The value of a pension should not be underestimated when going through a divorce.’

    In summary, to boost your retirement income, the experts recommend a simple course of action for all women. Set your retirement goals and work out what level of income you require. Maximise your pension contributions and fill in any NI gaps to get the most out of the state pension. Eliminate any debt. And regularly review how your pension pot is invested.


    Why making women wait longer for their state pension is unfair

    The retirement prospects of more than two million women have been damaged by a faster-than-expected rise in the official state pension age. The age at which the weekly pension could first be collected was set in 1948 at 60 for women and 65 for men; legislation passed in 1995 aimed to bring the two into line at 65, through phased changes during the current decade. But the coalition government decided in 2011 to speed up the transition, so that women’s state pension age would be 63 by April 2016 and 65 by November 2018. And the pension age for both sexes would rise to 66 from 2020 — all blamed on increasing life expectancy and the rising cost of pensions to the public purse.

    The campaign group Women Against State Pension Inequality, or WASPI, claims the changes could cost the women affected (those born in the 1950s) £40,000 in state pension foregone — and that many were given little or no notice of the deferral. WASPI is calling for a non-means-tested ‘bridging’ pension to provide extra income until the new state pension age is reached, and compensation for the losses suffered by women who have already reached what they had long expected to be their pension start-date. Former pensions minister Baroness Ros Altmann says: ‘Many of the women waiting longer for their state pension have been pushed into poverty.

    The Institute for Fiscal Studies suggests that one in five women aged 60 to 62 was in income poverty when the state pension age was increased to 63. It’s clear from this new research that as long as women can keep working, they can mitigate the impact of delayed state pension receipt, but those who cannot work either through illness, caring duties, unemployment or workplace age discrimination are left struggling.’