The gender pension gap – how can women work towards a better retirement reality?

On average, retirement incomes are much lower for women than for men. In fact, research puts the gender pension gap at a whopping 37.9%.

One of the main reasons for this is 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?

Once women enter the workforce, they can face several hurdles that can limit their career progress. This, in turn, can affect their 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, seek financial advice. A 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 individual circumstances.

State Pension

Recent State Pension reforms have been good for women.

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

This is good news for women retiring under the new arrangement. There are still many older women claiming lower amounts under the old system. And potentially struggling financially as a result.

Pension Credit is a benefit that tops up income to around £177 a week if you’re single, or £270 for couples. It also acts as a gateway to other benefits, with women making up the overwhelming number of people claiming Pension Credit.

It’s an underclaimed benefit. Only around two-thirds of those who are eligible actually claim it, meaning a lot of women are missing out on important pension income.

This could be for a variety of reasons – for example, many believe they can’t claim Pension Credit if they own their own home or have savings. Neither of these are true, so it’s important for women to check whether they qualify.

Pensions in the workplace

The fact that more women are being automatically enrolled into workplace pensions in recent years has boosted women’s retirement prospects.

Under current rules, anyone over 22 and earning over £10,000 each year is auto-enrolled into a workplace pension. Employer contributions and government tax relief offer a greater incentive to save for retirement. This can provide women a good starting point, though they’ll need to assess their contributions and investments regularly.

Investment growth means the value of a pension can increase over time. It’s worth remembering, though, that the value of your pension can rise and fall in value and you could get back less than you put in.

Pension planning for women can face challenges if they decide 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 to their pensions. In some cases, they may not earn enough to be re-enrolled, which can make it harder to save for a comfortable retirement.

Women can also face challenges later in their careers, with many leaving the workforce to look after elderly relatives. Menopause is also a huge potential disrupter to women’s working patterns, with some leaving the workforce entirely due to severe symptoms like anxiety and depression.

Divorce is another factor that can have an impact. If a woman’s partner has a bigger pension than them, it can lead to a degree of dependency. However, if the relationship were to end, women could find themselves approaching retirement with very little in the way of financial security.

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 at least some money saved in a pension.

The increase in flexible working following Covid-19 could also improve women’s retirement prospects. It can be easier to balance various responsibilities while working from home, which can in turn help women stay in the workforce for longer.

We hope the changes brought about by the pandemic are here to stay, and that employers continue to allow people to work more flexibly.

Consistency is key. If we can help more women stay in work, they’ll benefit from better pensions. This way, we can really start tackling the pension gap.

Top tips for supporting your female employees

1. Encourage them to keep up their pension contributions.

It can be easy for people to stop or cut back on their pension contributions when money is tight. But consistent, long-term contributions can be key in building a good pension.

2. Clearly communicate your employer contribution levels.

If you’re an employer who offers above the statutory minimum, particularly if you offer generous matching, make sure it’s made clear to your employees. This can make a significant difference over time.

3. Remind them they can claim Child Benefit in their name.

Many women miss out on valuable State Pension credits because they either don’t claim Child Benefit, or their partner does it in their name. If you’ve got employees who split their working time with looking after their children, make sure they know that they can claim Child Benefit.

4. Provide financial wellbeing education

Many women in the workforce leave money matters to their partner. However, if relationships sour, many women could be left with very little to live on in retirement. Providing financial wellbeing guidance to your employees can equip them with knowledge to help them understand the risks of relying on their partner’s pension.

Find out more about our financial wellbeing service here