What can be done to get rid of the pensions gender gap?

Women’s pension pots are 40% smaller than men’s on average in the UK, according to a survey carried out by Profile Pensions. They have an average £23,800 in their fund, compared with £39,500 for men.

International Women’s Day provides a great opportunity to flag up the gender gap holding women back as far as their retirement provision is concerned.

Women’s pension pots are 40% smaller than men’s on average in the UK, according to a survey carried out by Profile Pensions. They have an average £23,800 in their fund, compared with £39,500 for men.

This pensions gender gap reflects a range of well-documented factors, including the fact that women in full-time work still earn less on average than their male counterparts (almost 9% less), tend to work in poorer-paid jobs, including more part-time work, and take time out to raise a family. Overall, women’s earnings stand at 18% below men’s.

That disparity, while it affects their experiences during their working life, also has a profound effect on the outlook for retirement.

Research from AJ Bell finds that among those who have reached retirement age and started drawing an income from their pension fund since the pension freedoms were introduced in April 2015, women’s pension pots are worth 34% less than men’s, on average.

Women have retirement pots worth an average £118,000, while men have £179,000. As a consequence they draw smaller incomes, averaging around £6,700 a year, compared with £8,000 for men.

What can be done to get rid of the pensions gender gap? The single most important factor  in resolving women’s financial hardship in retirement is to close the pay gap.

Tom Selby, senior analyst at AJ Bell, says: “While there are policy reforms that could help boost women’s pensions – such as addressing the net pay anomaly which means many lower-paid workers miss out on pension tax relief altogether – the central problem is the pay gap.

“If this can be eradicated, you would expect the retirement income gap to close dramatically.”

For younger workers, auto-enrolment should also help to close it, though the danger is that those in low-paid and part-time jobs (who are mainly women) earn less than the earnings threshold of £10,000. 

But there are steps that women can take for themselves, to improve their prospects in retirement.  Most importantly, research by Fidelity found that if women paid an extra 1% of their salary into their workplace pension each month, the pension gender gap would be closed.

Beyond that, women can help themselves by trying to familiarise themselves with their own pension situation. Michelle Gribbin, chief investment officer at Profile Pensions, suggests the following steps:

  1. Get to know your pension – Who holds it and what type of scheme do you have? How much is paid in each month and by who, and how much will each pot generate when you retire? These are all good questions to start with.
  2. Understand your circumstances - Are you married or single? Do you and your partner both have your own pension provision? No two pensions are alike and it’s crucial you understand yours.
  3. Face uncomfortable questions – What happens if your partner dies? Do you know enough about their pensions status and what you would be entitled to if that happened?
  4. Review regularly – You should be asking yourself these questions regularly; ideally every year and certainly every time you change job.
  5. Seek help and guidance – There are resources out there, so make the most of them. The government has worked hard over the last few years to overhaul its guidance, and even very small pension pots will qualify for advice from online advisory firms (of which Profile Pensions is one).

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