It can be easy to bury your head in the sand when it comes to retirement, especially when it seems a long way off. 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 later life.
Just as there’s a gender pay-gap, there’s also a discrepancy between how much income men and women have in retirement, too – and it’s even bigger. Research from Scottish Widows shows there is a massive 39% gender pension gap*. This gap grows wider over the course of an average woman’s working life – at 22, there is a £100 difference in pension savings between men and women. By 65, this has grown to a shocking £100,000 difference. For the average woman to level this out, she would have to pay an additional £96 every month over 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, with only a small amount left over for anything else. It means many women won’t have the money to live comfortably, let alone do the things they hope to in retirement, such as travel, socialise and pursue hobbies. The average woman is set to receive £12k per year of income in today’s money during retirement, after paying for any expected housing expenses, compared to £19k for the average man. This includes private pension, other long-term savings, inheritance and the state pension or pension credits.
After women have children the pension gap begins to widen, as they take time out of work or reduce their hours
(Linda Brownlee)
This gender pension gap is largely driven by deep-seated structural issues. The gender pay/wage 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 to take career breaks due to caring responsibilities and a lack of affordable childcare. “Childcare is a huge contributing factor for women, often resulting in them giving up work or reducing their working hours to look after their family,” says Jill Henderson, Scottish Widows’ Head of Business Development. “After women have children the gap between their pension and that of a typical man’s starts to widen. This is because women tend to take on the lion’s share of childcare and employment breaks or part time working – all of which are big drivers of the gender pension gap.” Research found 63% of mothers have either reduced the number of days they worked per week when returning from parental leave or have not yet returned, compared to just over 16% of men.
Some women bear the brunt more than others. “The inability to save has a devastating impact on women’s income and ability to thrive in later life,” says Henderson. “Those women who are in a relationship fare better, but those who are single, divorced or are single mothers are most vulnerable.”
Two-thirds of single women and 60% of divorced women aren’t on track for a minimum lifestyle in retirement, while for single mothers the figures are even starker, at 75%. Working part time, coupled with other financial pressures, makes it much more difficult for single mothers to save for retirement. To make things even more difficult, gaps in work for raising children can also affect eligibility for the state pension. It means that 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. Auto enrolment – where an employer must automatically enrol eligible employees into their pension programme – has nearly doubled the number of females 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 it’s vital to invest in private pension pots.
Recent legislation is set to make two key changes to auto-enrolment; reducing the age requirement from 22 to 18, and removing the lower earnings limit (currently £6,240) which means helps people qualify for auto enrolment and get employer contributions and tax relief from the first ound they earn. “These changes will be most valuable to the young and lower paid, including those who work part-time, most of whom are women,” says Henderson.
The ideal amount to be putting away is 15% of your salary (a combination of what you and your employer pay in, plus any tax relief), but even if you can’t manage that, every little bit makes a difference, especially if you get started today. “People can only save what they can afford to, but we suggest people check in on their pension regularly especially if their situation changes,” says Henderson. Young women are now more likely to start saving earlier in life than men — and the sooner you start, the better the position you’ll be in when you retire.
When it comes to planning for retirement, knowledge is power. Scottish Widows have created a new Beat The Gap tool (www.BeatTheGap.com) to help simplify how people engage with pensions, and make it easier for women (and men) to understand how things like working pattern, and childcare can affect their pension. By inputting some simple information, including gender, age and salary, it plots the user against the UK average pension across their lifetime. You can then see where the gap is most likely to emerge and get tailored tips on how to boost your pension and close the gap.
It’s part of a range of free educational support to help women plan for their retirement.
There’s a long way to go to close the gender pension gap, with many societal changes that need to happen. Until then, being aware of the factors that can affect their pension can help empower women to take the steps they need to ensure a more comfortable retirement, while they wait for the bigger picture to shift.
Find out more about the gender pension gap, plus expert tips and free tools to help you save for your retirement at Scottishwidows.co.uk/yourfuture
*2023 RR and 2023 W&R reports (based on the National Retirement Forecast)
