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Mind the gender pension gap

International Women’s Day is a time to celebrate women and their achievements around the world. It’s also a chance to call out inequalities and focus on what needs to improve.

In this enlightened day and age, it seems ridiculous that there’s still such a thing as a gender pay gap. And yet, on average, men in the UK were paid 15.5% more than women in 2020 for equivalent work. As disappointing as this is, unfortunately the difference is more than doubled when it comes to pension savings. According to the Centre for Economics and Business Research (CEBR), women have an average shortfall of £183,936 compared to men’s pensions.

With pensions playing such a vital part in providing financial security in retirement, this issue is set to present problems for millions of women in later life.

Woman jumping over a rock crevice with a pink sunset

What is the gender pension gap?

The exact figure for the UK’s gender pension gap depends on who you ask… UK trade union, Prospect, put the average at 37.9% in 2020. Meanwhile, Legal & General (L&G) has split it into life stages, starting at 17% at the beginning of women’s careers before soaring to 56% at retirement age.

Whichever way you slice it, women generally have substantially less to spend in retirement than their male counterparts. Add to that a longer life expectancy ­­– women live an average of four years more than men – and there’s even more pressure on those pension pots to last the distance.

We know that inanimate objects like pension products aren’t at fault here, so who or what is to blame?

Why the gap?

  • Income disparity

We already know that women are receiving less money on average than men for similar work. The pandemic has seemingly widened the gap, as women’s wages have dropped twice as much­ – around 13% – compared to men. The less disposable income you have, the less affordable it’ll be to put some of it away for the future, even if it’s in your longer-term interests to do just that.

When pension contributions are a percentage of salary, this imbalance will trickle down to pension pots, eventually translating into a lower retirement income. A 2021 CEBR study found that men who’ve worked full-time for 30-34 years get an average annual retirement income of £22,776 compared to £17,004 for women who worked the same amount of time.

  • Time in employment

It’s much more likely for women to take career breaks through maternity leave and take time out as caregivers for family members. Also, around 42% of working women work part-time ­vs. just 13% of men. As auto enrolment into a pension only kicks in at an income of £10,000, this excludes many part-time workers (and their employers) from the compulsion to contribute to a pension.

Of course, the longer you actively save, the more you’ll have, especially with compound returns over time. So, where gaps in employment or reduced hours are reflected in pension contributions – even over the short-term – this will have a cumulative effect on the growth of a pension pot.

As a result of inconsistent employment and the gender pay gap, a 2021 Scottish Widows report estimates that, on average, women in their twenties today are on track to retire with £100,000 less in their pension pot than men the same age. This means a woman would have to work 37 years longer than a man to accumulate the same income for retirement.

  • Confidence about money

Often, inaction comes from fear of getting things wrong. A 2018 Money Advice Service survey found that, while there was little difference between men and women in financial capability, women overall were much less confident in taking action with their money, especially when planning for the long term:

  • Only 43% felt confident in planning for their financial future vs. 52% of men
  • 64% said they had done nothing or very little to plan financially for retirement vs. 48% of men
  • 63% of working-age women had paid into a pension vs. 72% of men
  • 49% were happy making decisions about financial products and services vs. 58% of men. 

What can we do about the gender pension gap?

With a lot of systemic and policy factors at play here, there’s no easy fix. That said, there are encouraging signs that the gender pay gap is narrowing for the younger generations.

While the gender pension gap is a genuine problem today, one step in the right direction is encouraging good financial habits for women (at every age) and nurturing the confidence to take control of their money. That’s why good financial planning is arguably even more crucial for women.

At Goodmans, we’re all about empowering people to live their best lives through considered, no-nonsense financial planning. We believe that it’s never too early to start planning for a better retirement and there will be steps ­– both big and small ­– you can take today to improve your financial future. While we can’t say we can plug the gender pension gap, what we can do is build a plan that makes sure your pensions, savings and investments are in the best shape possible for a great retirement.

Contact us today to get started.




Financial Planner

Andrew is a Director of Goodmans Financial Planning and has worked within financial services for over ten years looking after businesses, business owners and personal clients.

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