But knowledge is power, and a little understanding of it can go a long way in reducing its effect.
By Shilpa Ganatra
Fifty years after it became illegal to pay women less than their male counterparts, it’s a sign of progress-not-perfection that a 17% gender pay gap 1 still exists. Yet a newer and more concerning revelation is that the gap gets a whole lot bigger when we reach retirement.
A recent report found a massive 40.3% gap in pension savings between women and men – that’s a difference of £7,500 a year 2 on a fixed and already-reduced income.
“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 face widespread 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 17% gender pay gap immediately translates into a 17% pension gap ¬– 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 an average of five years longer to pay back student debts 3, which means that women often start saving for their pension later. The gap isn’t expected to close until 2050, so this fundamental cause of the pension gap looks set to continue for the foreseeable.
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 take part in the scheme, you have to earn more than £10,000 a year with that company, and because women are more likely to be in lower-paid and part time jobs 4, they’re less likely to be able to get this benefit. In fact, over three quarters of employees falling below the £10,000 threshold are women 5.
Rachel Picker, a financial adviser at Aviva, adds that “if women aren’t hitting £10,000 from one employer, it means they’re losing out on the free money that other employees get.”
In addition to missing out on the extra pay, it also means they have to 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. And just to throw another spanner in the works, “women tend to be less confident about their finances,” says Picker. “But that shouldn’t be the case. 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 6. “These recent changes have helped,” says Ferns. “They’ll make a difference over time, but the full effect of those differences won’t be felt until 2041, 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 5. And even now, only 1% of eligible couples made use of the Shared Parental Leave scheme, designed to encourage childcare to be more evenly split 7.
When it comes to divorce, women’s pension pots end up being a third of divorced men’s: on average, £9,000 compared with £30,000 8.
“When you get divorced, your circumstances change drastically,” explains Picker. “You’re under more financial pressure, and saving for your pension seems less important.”
Often, pensions are forgotten when discussing divorce proceedings, but the pot can be as valuable as a house. If the pension split can’t be agreed between the couple, a Pension Sharing Order evens out discrepancies. “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. The gender pension gap can be re-balanced with a few simple steps
The Pension Sharing Order shows that there are solutions out there to 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? You could:
- contribute a little more into your workplace pension
- 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 if you’re eligible
- check your National Insurance record 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. Perhaps start by asking your partner to pay into your pension on your behalf if they earn more
- 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 can 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.