AN official report has revealed a 35% gender pensions gap in the UK. The study — the first of its kind from the Department for Work and Pensions (DWP) — showed that the pensions gap varies for different ages. It is lowest between the ages of 35 and 39 (10%) and highest between 45 and 49 (47%).
Automatic enrolment into workplace pensions was introduced in 2012 to help address a decline in private pension saving and to make long-term saving the norm. It seems to have helped the matter as the study showed that for the auto-enrolment-eligible population, the gender gap is slightly smaller at 32%, so there is hope that as more women save into workplace pension schemes the figure will continue to shrink.
However, private pension wealth is not equally distributed, and women have less private pension wealth on average. The issue is a long-standing one. Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International, said: “You can’t solve a problem without fully understanding the extent of the challenge, so the Government’s decision to publish gender pension gap figures for the first time marks a step in the right direction when it comes to addressing the gaping financial inequality that exists when women and men reach retirement age.
“Lower income levels combined with career breaks or periods of part-time work to care for children or loved ones, means men and women are rarely on a level playing field when it comes to retirement savings. It’s an issue that is well-documented, yet still today, closing the gender pensions gap remains one of the biggest financial challenges that we all face.”
Barriers to pension saving
One of the key reasons women tend to fall behind in their retirement planning, compared to men, is taking time off to have and raise a family. The working patterns of women and the fact that they might work more than one part-time job – leaving them potentially ineligible for automatic enrolment – also have an effect on women’s pensions.
The Government stated in March that they will lower the age when someone is automatically enrolled into a pension to 18 from 22 and also that the lower earnings limit will be removed which means that there will be pension saving from the first pound of income. But until then the problem persists.
Another barrier is that women are less likely to make investments. New research from Wealthify says many women are being put off from investing due to a lack of confidence and a perceived lack of knowledge.
A staggering 73% of women don’t feel confident investing their money (compared to 58% of men) and a further 73% of women stated that they haven’t invested before because they don’t think they are knowledgeable enough (compared to 67% of men).
Closing the pension gender gap
There are a number of practical steps that can be taken to boost your pension as a woman – though some of these may be useful for anyone saving for retirement.
1. Take an active role
Taking an active role in saving for retirement from an early age will help to close the gap. That means being engaged with how your money is invested in your workplace scheme. If you’re self-employed, that means starting a personal pension.
Even if you’re in a work scheme you can have your own private pension – most likely a self-invested personal pension (Sipp) too. Investing doesn’t have to be complicated – there’s plenty of research and guidance available on platforms that can help you get started – which is often the hardest part.
2. Make time
Not having enough time is often cited by women as one of the reasons they don’t invest but investing needn’t take up hours of your time. You can get plenty of help with selecting a portfolio using best buy fund lists or even taking advantage of the ready-made portfolios offered by most of the investment platforms.
And although you should take the time to review your investments each year, it’s often better not to tinker with your investments too much, as staying invested reduces the risk of making badly timed decisions. Regular buying and selling will also incur trading costs which can eat into your returns.
3. Consolidate pensions
Consolidate old pensions and seize control. If you have a string of old pension schemes from previous employers you might want to move them into one place. Having your retirement savings under one roof can make things much easier as you won’t have to deal with multiple providers.
It means you can take control of your money and potentially have a wider and more flexible range of investment options than might be available through some outdated workplace pension schemes. Also, older pension schemes are also unlikely to offer flexible ways to access your money at retirement.
Consolidating could even see you pay less in fees – something that eats into your returns. Review old pensions you no longer pay into and before moving make sure you check you’re not giving up any valuable guarantees or benefits that come as part of the package.
4. Stay invested during maternity leave
Women on maternity leave should ensure they stay in the pension scheme. Quitting it is likely to cost more in lost employer contributions and tax relief (and potential stock market growth) than can be saved in the short term.
If you take a career break, consider saving in a private pension plan. Those with no earned income at all can save up to £3,600 per tax year but this will only cost £2,880 because tax relief at the basic rate is automatically added to pension savings. Keeping pension savings going, even at a modest level, can make a significant difference to eventual retirement income.
5. Be canny with your pension
At retirement it may be useful to consider keeping your workplace pension invested for longer and drawing on savings. This is especially useful if your partner has a larger fund and is already withdrawing from theirs. It means that your pension has more time to grow.
Conclusion
There are all sorts of reasons for the gender pay gap, but following the above tips will ensure that you keep it as small as possible.
Phot by Duncan Shaffer on Unsplash
