Do women get less from their pensions than men?

This content is for information and educational purposes only. It should not be taken as financial advice or investment advice. To receive tailored, regulated financial advice regarding your affairs please consult us here at Hanson Financial Services (financial advice in Liverpool). Much attention is paid to the gender pay gap in the UK, which stands at 16.1% for full-time employees. However, many also point to a disparity in pension savings and income between men and women. Below, our team at Hanson Financial Services (financial advice in Liverpool) explores the extent of this “pension gender gap”, why it exists and what could be done about it. We hope you find this content useful and invite you to get in touch if you’d like to discuss your financial plan and pension with us.

The pension gender gap

Simply put, the pension gender gap refers to the difference in retirement income between men and women in the UK. This stood at around 37.9% in 2019-20; women being the lower-income recipients. The picture is muddy, however, partly because different types of pensions exist in the UK which likely contributes to a pensioner’s overall retirement income. State Pension income, for instance, is based on your National Insurance (NI) contributions and can be built up through employment (PAYE) and other means – such as pension credits. Workplace pensions, however, are typically distinct pension “pots” which both you and your employer put money into, towards your retirement. You might also have your own private (or “personal”) pension such as a SIPP, and some may have a defined benefit pension (also known as final salary pension) which pays out a guaranteed lifetime income when you retire.

Reasons for the gap

Arguably, a big part of the reason for the pension gender gap is due to the historic roles of men and women in British society. Even as recently as the 1980s and 1990s, men have traditionally gone out to work whilst their wives stayed home to look after children. Those women who did work tended to take long “career breaks” after having their first son/daughter.  Therefore, many women did not build up as much of their own State Pension, workplace pension(s) and private pensions as their husbands. When retirement came, women often needed to rely on the retirement savings and State Pension built up by their husband – the breadwinner. Today, the society picture is different. Over the last 40 years, more women have entered the workforce – up from 57% in 1975 to a record high of 78% in 2017. Increasingly, women choose to delay having children to focus on their careers. Cohabiting is also more common – typically requiring financial responsibilities (e.g. household bills) to be shared. These societal trends lend towards helping women build up more of their own pension savings. However, challenges still exist which contribute to the gender pension gap. For instance, when children arrive, many opposite-sex households still end up with the woman staying at home. This is largely because men receive two weeks of paid paternity leave, whilst women get 90% of their average weekly earnings (before tax) for the first 6 weeks (Statutory Maternity Pay, or SMP). For the next 33 weeks, women on maternity leave then receive £151.97 per week – or 90% of average weekly earnings (whichever is lower). The new shared parental leave rules do allow more men to spend more time at home with the kids, if they want.  However, given that men still typically earn more than women, mothers with newborns still face greater pressure to stay at home to help keep the household finances afloat – often undermining their ability to save effectively into pensions.

What you can do

Younger women (in their 20s) should think carefully about how they want to balance any dreams for careers, children and retirement. Planning ahead, early, can make each one easier to attain. A good starting point is to make sure you get the best State Pension deal when you retire. In the 2021-22 tax year, this means building up at least 35 years of “qualifying” NI contributions over a working life. Theoretically, this can still be achieved if you want to have children and stay home to raise them, for a period. If, say, you work full-time from age 22-32, then this adds 10 years to your NI record. Afterwards, if you decide to stay at home for 10 years to raise your children, then you can keep building up your record via pension credits (if you are registered for Child Benefit for a child under 12). From age 42 you might then return to work. In which case, you would still have 25 years ahead of you to hopefully complete your NI record and get the full State Pension. Of course, many women do not want to have children (or cannot). In which case, you likely have more flexibility to continue working, progressing your career and building up retirement savings. A partner (or spouse) may feature in your life, or not. The key here, regardless, is to use time to your advantage to get the most from compound interest on your retirement savings. Be careful not to keep delaying the matter of pensions, as you might need to set aside more of your future salary to achieve your retirement goals.

Conclusion & invitation

Are you interested in talking to a financial adviser about your financial planning needs? We’d love to assist you here at Hanson Financial Services. Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.