Gender pension gap reaches 48%

We all dream of an idyllic retirement where we are financially comfortable, but achieving that in reality can be tough. And that’s especially true for women.

New government research* paints a bleak picture for women approaching retirement. There is a 48% gap between the amount of money built up by men and women coming up to retirement. This is obviously horrifying.

The research shows that for the years between 2020 and 2022, women aged 55 to 59 built up on average a private pension fund of £81,000 compared with £156,000 for men. These funds would buy a lifetime income of £6,000 for a woman aged 60, and £11,000 for a man.

That’s a £5,000 difference for every remaining year of their life.

Good news! Women are saving for retirement!

But it’s not all bad. Women aren’t ignoring their pensions – they are joining their employer’s pension schemes and paying into pensions. Automatic enrolment has made a really big difference. For the last 13 years or so, if you join a new employer, as long as you are over 22 and earn more than £10,000 then your employer will automatically put you in the pension and you can start saving for your retirement. Your employer will chip in on contributions as well.

Because of this, almost as many women as men are saving for their retirement; the government research shows 78% of women have private pensions compared to 82% of men.

And what’s more, women are paying in roughly the same contribution rate as men – around 8% for those working in the private sector.

So why do women have smaller pension pots?

One of the biggest reasons is that women on average earn less than men, and as pension contributions are worked out as a percentage of salary, this means they contribute a lower amount of money to their pensions than men. And lower contributions will translate into smaller pension pots over time.

Historically, women may not have been paid the same as men. But women also often make different career decisions than men – for example working part-time when they start a family and taking a cut in salary.

The research shows the gender pension gap is much smaller at younger ages; it’s 22% for those aged between 25 and 29 but rises dramatically for older women.

These older women also wouldn’t have had automatic enrolment when they started work, so haven’t had the chance to build up a pension fund.

Does it matter where you work?

Yes. Those women who work in the public sector fare better than those that work in the private sector.

The gender pensions gap for those that only have defined benefit pensions is much lower at 39%. These types of pension pay out an income that is based on your salary and how long you have worked for, and are now usually only available to people who work in the public sector.

Those working in the private sector usually have defined contribution pensions which build up a pot of money over time through contributions from both you and your employer.

The gender pensions gap for those who only have defined contributions pensions is much higher at 75%.

It obviously matters where you work, but more women work in the public sector than they do in the private sector.

How to get back on track

Although the gender pensions gap can make grim reading, all is not yet lost. There are lots of things you can do to get your pension saving back on track.

Join your employer’s pension if you are given the chance. Even if you’re not automatically enrolled in, you may be able to ask to join.

Consider paying in more. If you do, then your employer may ‘match’ that increase and also up their contributions.

Work out if you have set the right investment strategy for your pension depending on how long you have to go to retirement. You may want to take a few more risks if you still are some way off retirement.

And think about combining old workplace pensions and private pensions together in one place where you can control them and possibly benefit from lower charges or a different investment approach.

You can still make changes, and help turn that idyllic retirement dream into reality.

*Source: Gender Pensions Gap in Private Pensions