It can be easy to bury your head in the sand when it comes to retirement, especially when it seems so far away. But if you want to live comfortably when the time comes to stop working, planning ahead is vital. It's even more important for women, who are on track to have significantly less money than men in the future.
Just as there is a gender pay gap, there is also a discrepancy between the income that men and women have during retirement, and it is even greater. Research from Scottish Widows shows there is a huge gender pension gap of 39%*. This gap grows wider over the average woman's working life: by age 22, there is a £100 difference in pension savings between men and women. By age 65, this difference has increased to a staggering £100,000. For the average woman to level this out, she would have to pay an extra £96 every month for her working life.
Scottish Widows' latest 'Women and Retirement' report shows that a third of women are not on track to achieve even a basic lifestyle in retirement, covering essential needs, and have only a small amount left for any another thing. It means that many women won't have the money to live comfortably, let alone do the things they hope to do in retirement, like travel, socialize and pursue hobbies. The average woman will receive £12,000 a year of current money income in retirement, after paying expected housing costs, compared to £19,000 for the average man. This includes private pensions, other long-term savings, inheritances and state pensions or pension credits.
After women have children, the pension gap begins to widen as they take time off work or reduce their hours.
(Linda Brownlee)
This gender gap in pensions is largely due to deep-rooted structural problems. The gender pay gap is a factor, as naturally when women earn less, they have less to save. Women are also more likely to work part-time and take career breaks due to caregiving responsibilities and a lack of affordable childcare. “Childcare is a huge contributor to women, often leading them to leave work or reduce their working hours to care for their family,” says Jill Henderson, business development director at Scottish Widows. . “After women have children, the gap between their pension and that of a typical man starts to widen. “This is because women tend to shoulder the brunt of childcare and employment breaks or part-time work, all of which are big drivers of the gender pension gap.” The research found that 63% of mothers reduced the number of days they worked per week upon returning from parental leave or had not yet returned, compared to just over 16% of men.
Some women bear the brunt of it than others. “The inability to save has a devastating impact on women's income and their ability to thrive in old age,” says Henderson. “Women who are in relationships do better, but those who are single, divorced or single mothers are the most vulnerable.”
Two-thirds of single women and 60% of divorced women are not on track to achieve a minimum lifestyle in retirement, while for single mothers the figures are even starker, at 75%. Working part-time, along with other financial pressures, makes it much more difficult for single mothers to save for retirement. To complicate matters further, gaps in work to raise children can also affect entitlement to the state pension. It means single mothers are almost twice as likely to live in poverty in retirement than the average UK woman.
The overall picture is worrying, but there is some room for optimism. Automatic enrollment (where an employer must automatically enroll eligible employees into its pension scheme) has almost doubled the number of women saving into a workplace pension in the last decade. For most people, the state pension will not provide enough income to live comfortably in retirement, so investing in private pension funds is vital.
Recent legislation will introduce two key changes to automatic enrollment; reduce the age requirement from 22 to 18 and remove the lower income limit (currently £6,240), meaning it helps people qualify for automatic enrollment and get employer contributions and tax relief from the first income they they win. “These changes will be most valuable to the young and the lowest paid, including those working part-time, the majority of whom are women,” Henderson says.
The ideal amount you can save is 15% of your salary (a combination of what you and your employer contribute, plus any tax relief), but even if you can't achieve this, every little amount makes a difference, especially if you start today. “People can only save what they can afford, but we suggest they check their pension regularly, especially if their situation changes,” says Henderson. Young women are now more likely to start saving earlier than men, and the earlier they start, the better off they will be in retirement.
When it comes to retirement planning, knowledge is power. Scottish Widows has created a new Beat The Gap tool (www.BeatTheGap.com) to help simplify the way people interact with pensions and make it easier for women (and men) to understand how things like working patterns and Childcare can affect your pension. . By entering simple information including gender, age and salary, it compares the user to the average UK pension over their lifetime. You will then be able to see where the gap is most likely to arise and get personalized advice on how to increase your pension and close the gap.
It is part of a range of free educational support to help women plan for their retirement.
There is a long way to go to close the gender pension gap, and many social changes need to occur. Until then, being aware of the factors that may affect your pension can help empower women to take the necessary steps to ensure a more comfortable retirement, while waiting for the big picture to change.
Find out more about the gender pension gap, plus expert advice and free tools to help you save for your retirement in Scottishwidows.co.uk/yourfuture
*2023 RR and 2023 W&R reports (based on the National Retirement Forecast)
