Should I increase my pension contributions by 1%?


When it comes to pension saving, women can often find themselves trailing behind their male counterparts.

There are a host of reasons for this so-called ‘gender pensions gap,’ including the fact women often take career breaks to raise children or care for older relatives. Time off work can mean months – or years – when you’re not saving into your pension. This can mean less money when you eventually stop working for good.

But did you know that as a woman, investing even as little as an additional 1% into your workplace pension during your career could help you narrow that gap?

Not only this, but it could also help you build a bigger retirement pot than if you had no gaps at all.

What is the gender pensions gap?

Based on the Office for National Statistics’ average earnings figures – and adjusting for inflation and investment growth – the average pot at retirement for a woman paying the minimum 8% into their workplace pension over 40 years without a career break is £306,77. This compares to £453,616 for men. 

For women who choose – or need – to take career breaks in order to bring up children or look after older relatives, this gap in retirement funds widens further.

The power of 1%

While this makes for gloomy reading, new research by Fidelity International shows that if women increased their pension contributions by as little as 1%, they could gain up to £37,000 in retirement, even if they take a career break. Here we take a closer look.

How to grow your pension pot?

According to the analysis, a female employee aged 31 who is contributing 8% into their workplace pension, could see their pot fall by more than £25,000 should they take a two-year career break to care for their children. 

However, if they opted to put an additional 1% of their salary towards their pension from age 25, they can more than make up this shortfall – potentially building a bigger retirement pot than if they had no career breaks at all while contributing 8%. 

Someone who increases their pension contributions by 1% from age 25 and who takes a two-year career break at 31, could see their pot rise to £316,340. 

This is almost £10,000 more than a woman paying in the minimum 8% without a career break. And it’s over £35,000 more than a woman who takes a two-year career break and continues to pay the average 8% in pension contributions.

Impact of a shorter time out of the workplace

At the same time, the typical shortfall experienced by women taking career breaks is narrowed again if they take less time out of work. 

Say, for example, a 31-year-old chooses to take a one-year break, she could see her pension pot rise to £330,317 by increasing her contributions by 1%. 

This is over £23,000 more than a woman who contributes the 8% without a career break. And it’s over £36,000 more than if she’d taken a one-year break without increasing her contributions. Equally, if the career break is reduced to just six months, the pot at retirement increases. 

According to Fidelity, a final retirement pot of £337,420 can be enjoyed by women who contribute 1% more into their workplace pension. This is over £31,000 more than a woman paying in the minimum 8% without a career break. And it’s £37,000 greater than if they had a six-month break without increasing their contributions. 

What about older savers?

Even if you’re aged 50, and having to factor in career breaks to care for older relatives, similar principles still apply.

Further analysis by Fidelity shows that women who contribute just 1% more into their workplace pension from early on in their careers could see their pot surpass £306,377 (the figure for the ‘average pot without a career break.’)

Applying the same methodology, the average pot at retirement could go up to £335,305 for someone who contributes an extra 1% to her workplace pension from age 25 – and who decides to take a six-month break later in life. 

This is over £28,000 more than the pot for a woman paying in 8% without any career breaks. And it is over £36,000 more than a woman paying in the minimum 8% with a six-month break. 

Small changes can make a difference

This research clearly highlights the huge difference you can make to your long-term pension savings with just small changes. 

Emma-Lou Montgomery, associate director, personal investing at Fidelity, said: “The power of 1% is truly undeniable. The trick is getting potential future career breaks factored into your strategy as early as you can. You then need to maximise your pot through taking advantage of employer contributions, aiming to increase contributions as your income grows – and being consistent with pension planning.”

In short, by adding that 1% to your contributions over the course of your career, you can make a significant difference to the amount you have when you stop working.

Why you need to get your pension forecasts

Implement this within a Heading 2 tag. While starting early is key when it comes to pension saving, it’s also really important not to lose track of the sums of money you have tucked away. 

Worryingly, many women have absolutely no idea what’s in their pension pot – and therefore no comprehension of how much they may have for their retirement. 

(New findings from Standard Life show one in seven people have never checked their pension).

So, if you’re reading this and thinking about bumping up your workplace contributions by 1%, then now could also be a good time to get some pension forecasts. 

This applies not only to your workplace pension, but also to your State pension – as well as to any private pensions you have. 

While you’re at it, check for breaks in your National Insurance record,  and see if you can ‘plug’ them. 

You typically need at least 10 years of NI contributions to receive any State pension at all, and at least 35 years to receive the maximum amount. This currently stands at £10,600 a year. 

Calculating whether to top up can be confusing. To help you make the right decision, you can log on to the State pension forecast calculator – accessible through your Government Gateway. 

Equally, if you’re self-employed, find out about the tax breaks for savings into a pension. Moneyhelper is a good starting point. 

Seek advice

Speaking to a financial adviser as early as you can in your working life can be a big help when mapping out how you’re going to achieve both your short-term – and long-term – goals. 

Read more about the questions you need to ask a financial adviser here.

Track down lost pensions

Also set aside some time to find any lost pensions. Figures suggest an estimated £26.6 billion could be sitting in lost pots. 

Throughout a career it’s easy to collect several different pensions, but as they build up, it can be harder to keep on top of them.

Dean Butler, director of retail direct at Standard Life, part of Phoenix Group, said: “Life gets in the way and when you move house or change jobs, your pension is unlikely to be top of your agenda – and can easily be forgotten about.”
A good first step to track them down is by using the Government’s Pension Tracing Service.

Here you can locate both workplace and personal pensions by entering the names and addresses of your previous employers, or the names of your old pension providers. 

It may require a little legwork, but a little effort now could reap some rich rewards if you do end up finding some lost pots.

Photo from Robert Kneschke on Canva