Five things every woman should know about the gender pension gap

Two women in raincoats hugging

Thought the gender pay gap was enough to contend with? Wait until you hear about the gender pension gap that’s twice as large.

But knowledge is power, and a little understanding of it can go a long way in reducing its effect.

By Shilpa Ganatra

Over 45 years after it became illegal to pay women less than their male counterparts, it's a sign of progress-not-perfection that a 15.5% gender pay gap 1 still exists when looking at all employees.

A recent report found a massive 40.3% gap in pension savings between women and men — that's an average difference in pension income by gender of about £7,500 a year.2

“I think most people will be shocked to find the gap as wide as it is,” says Sue Ferns, senior deputy general secretary of Prospect, who commissioned the report. “We also found that the gap had increased slightly from 39.9% from the previous year. The key message is that there’s a significant difference, and it won’t go away on its own.”

There’s plenty that the government and employers can do, and are doing, to help close the gap. But as the numbers show, it’s not enough — “so with greater campaigning, we want to see more women taking action themselves,” says Ferns. 

In a society where women live longer and could possibly face retirement poverty, it’s high time that we became as familiar with the causes and solutions of the pension gap as much as the pay gap. So here’s the lowdown on what women need to know.

1. The gender pension gap begins with the gender pay gap

Because the amount people save for a pension is usually a percentage of their salary, the 15.5% gender pay gap could immediately mean that, on average, women have less salary to put into their pension — and that’s before aspects like career breaks, caring responsibilities and part-time working are even brought into the equation. 

Plus, the lower salary means that it takes women who started university after 2006/2007 an average of five years longer to pay back student debts. 3 This may mean that women often start saving for their pension later as their salary is going into paying off their student debts for a longer period, whereas men with higher salaries may be able to pay their loans off sooner — leaving them with more salary to add to their pension. So until we see more progress with the pay gap, the pension gap will remain a step behind.

2. Women need to be more proactive

Part of the gender pension gap is down to the rules around workplace pensions. In these, if you pay in money, your employer has to too. But to be automatically enrolled in the scheme, you have to earn more than £10,000 a year with that company. That means because women are likely to be in a lower-paid and part-time job 4, they're less likely to be able to take advantage of being automatically enrolled into their workplace pension.

Rachel Picker, a financial adviser, adds that “if women aren’t hitting £10,000 from one employer, it means they may be losing out on employer contributions that other employees are getting.”

In addition to missing out on the extra contributions, women are often forced into having to take more action when it comes to their pension - if they're earning less than £10,000, they need to ask their employer to be enrolled into their workplace pension scheme. Or they can start their own private pension. As a society, we’re not great at being proactive about our pensions, so it’s less than ideal that women are pushed into needing to be more proactive. 

But it's important that women do take these steps to grow their financial know-how. Rachel says: "I tell my clients that what you don’t know doesn’t matter — it’s my job to work it out, and start them on their education journey.”

3. The State Pension isn’t as equal as we might think

At least state benefits are fairer than workplace pensions, right? Perhaps not. The amount you get is largely based on how many years you’ve worked or National Insurance credits you’ve received during time off for parenting or caring — but only if you’re entitled to them, and claimed them. 

And they’re big ifs. Because men are more likely to be in continuous, full-time employment, men on the pre-2016 State Pension receive an average of £163.76 weekly, compared to £136.07 for women.  

Changes designed to equalise the benefit means the new State Pension scheme results in less of a gap, with men on £160.09, and women on £152.90 5. “These recent changes have helped,” says Ferns. “They’ll make a difference over time, but the full effect of those differences aren't projected to be felt until 2041 6, which is a long time for people to wait.” 

4. Divorce adds to the gap

The pension gap is even more clear cut in some scenarios. For example, the average pension pot for a married man is £53,000 compared to £10,000 for married women 7.  

“When you get divorced, your circumstances change drastically,” explains Picker. “You’re under more financial pressure, and saving for your pension seems less important.”

Although pensions may not be top of agenda when discussing divorce proceedings, the pot can be as valuable as a house. That's why it's so important that pensions are split fairly. Enter the Pension Sharing Order. “This order means that if you’ve been married for 40 years and raised your two children, the court will entitle you to a percentage of your other half’s pension to make up for the disadvantage,” says Picker. 

5. A few simple steps to help re-balance the gender pension gap.

The Pension Sharing Order shows that there are solutions out there to help level the pension playing field, and women just need to be aware of them. “Don’t be afraid to get advice.” says Picker.

So what can help close the gap? These are a few things you could consider doing:

  • Contribute a little more into your pension (its value can go down as well as up and you could get back less than is paid in)
  • Opt back into a workplace pension if you’ve opted out
  • Start early as possible, as a small contribution adds up over time
  • For the State Pension, apply for National Insurance credit on gov.uk if you’re eligible
  • Check your National Insurance record on gov.uk to see if you’ll get the full State Pension amount when you retire: you need a total of 35 years of National Insurance contributions or credits for that. If it looks like you won’t hit that, you might have the option of paying to fill in the gaps
  • For those in a long-term relationship, have a stake in your finances.
  • Should divorce ever come into the picture, keep pensions at the forefront of your mind when splitting assets

“Try to get to grips with your pension,” says Picker. “You may be able to get pension awareness and education sessions through your workplace, and there’s loads of resources on our site too.”

To get tailored support and advice about your money, speak to your financial adviser. And if you don’t have one, speak to one of our financial advisers, who’ll be able to help you. Please note that we can only advise on our products and services. 

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