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For most of us, the thought of retirement seems so far away that any talk of ‘pension’ or ‘saving for your future’ makes us hit an internal snooze button. But thanks to the widening gender pensions gap, we need to wake up. Fast.
Since NOW: Pensions first published their report into the gender pensions gap in 2019, the gap has continued to widen. While the average UK pension pot has almost doubled to £111,500, women’s savings have barely increased. In fact, we finish up with an average pension pot of £69,000. The average man? He takes home a healthy pension of £205,800. That’s almost three times more.
“I don’t think pensions is a topic of discussion amongst most families or friends and there is certainly more that needs to be done in order to create better awareness of the huge pension savings gaps,” says NOW: Pensions and female financial adviser Samantha Gould. “The reality is that millions of women in the UK are reaching retirement age and going straight into pensioner poverty – given that on average women tend to live 4 years longer than men – we actually need more savings to cover our retirement years. We are a long way off that.”
So, what’s behind this huge disparity between men and women’s pension pots? One of the main contributing factors is – yep, you guessed it – the gender pay gap. “This means that throughout a woman’s career, she is likely to earn less than a man,” explains Samantha. In 2021, the difference between average hourly earnings for men and women in the UK was 15.4%. Even women who don’t take a career break throughout their working lives will retire with £156,065, still 24% less than an average man’s £205,800.
“But the biggest contributor to the gender pensions gap is the amount of time women spend away from the workforce to care for children,” says Samantha. “NOW: Pensions research has revealed that women spend on average 10 years out of full-time work, but for around a third of women this can grow to 16 years. Whilst women are not working, they are unlikely to be putting any money away into pensions (or other savings) which means when they reach retirement age, they have about a third of the pension savings of a man who has likely had no significant breaks in his career.”
This may all sound a bit doom and gloom, but there are ways you can get pension savvy, and save for your future:
Start early, or start now
The earlier you start saving, the better, and the general rule is as soon as you start working, you need to be contributing to your workplace pension. But don’t worry if you didn’t start that early – there’s still time to start now. “This is thanks to compound interest, which is how your money grows over time,” says Samantha. “Compound interest means the longer someone is invested, the more time their money has to grow and earn interest. So, if you have £1,000 in an account earning 5% interest, after the first year you will have £1,051. The next year, you will earn the 5% on the new balance which is £1,105. If you continue to do this over a 40 year period, you can significantly grow your savings. Anyone who starts saving even a small amount in their 20s and 30s will likely end up with a larger retirement fund than someone who saves a much greater amount in their 40s and 50s.”
Enrol in your workplace pension
This is a no-brainer, according to Samantha. “Not only are you are contributing to your retirement, but so is your employer and the government (in the form of tax relief),” she explains. “It’s essentially free money. But if you don’t pay in, neither will they, so leaving your workplace pension is the equivalent of turning down a 3% pay rise. No one would do that, would they?”
Pay in as much as you can
The more you put in, the more your money will grow, and the more you’ll end up with. Work out how much you can afford to pay and adjust your payments accordingly. “Although the current auto enrolment minimum contributions are set at 8% (3% of which must be from your employer), you can pay in more than the minimum 5%, and some employers will match that to a certain level,” says Samantha. “If you’ve had a pay rise or recently received a bonus for example, put some of it away in your pension pot.”
Don’t stop saving if you take a break
“While a child will of course put an additional strain on your finances, try your best to think about the long term and keep up your savings as much as you can,” says Samantha. “If you continue paying in whilst on maternity leave, you’ll be benefitting from your employer’s contributions and growing your pension while not even working.” In fact, even if a woman takes a 10-year career break, she can bridge the pension gap, which will make a real difference to the quality of her retirement.
Do regular check-ups
Just as you would your current account, make sure to regularly check your pension pot. “Log in to your pension scheme portal and check your pension pot regularly,” says Samantha. “This will help you stay on track for the best possible lifestyle in the future.”
Don’t be afraid to talk money
Lastly, don’t let the taboo around talking about money stand in your way. The more openly we talk about finances, the more we can arm ourselves with the knowledge we need to protect our futures. “It’s generally accepted that women are less comfortable talking about money, but we need to change that,” says Samantha. “It’s time for women’s pension power!”
Find out more about NOW: Pensions mission to create a fairer UK pension system here
Samantha Gould is Head of Campaigns at NOW: Pensions
