Although we like to believe we live in an equal society, the sad truth is that there is still a gender pay gap – and this is one reason why women need to max out their pension pots.
How bad is the gender pay gap?
The good news for women is that the pay gap between males and females is gradually closing. However, there is still a way to go before both sexes are paid equally.
At present, women in the UK earn 85.5p for every £1 earned by UK men, according to statistics in The Daily Telegraph. Full-time female workers can expect to earn 22% less than their male counterparts doing exactly the same job, which effectively means that they are not being paid for 1 hour 39 minutes of their working day.
How does the gender pay gap impact pensions?
As women on the whole tend to earn less than men, their pension contributions are lower as a result. This can lead to male workers accruing 40% larger pension pots when they retire.
To make matters worse, women are not taking retirement saving nearly as serious as men, with only 52% saving for their pensions – compared to 60% of their male colleagues.
The older people get, the worse this problem becomes, with a worrying 25-30% of 49 year-old women saving nothing for their retirement at present.
How can women increase their pension pots?
The good news is that there are organisations that exist to fight for equal pay between men and women. Women Against State Pension Inequality (WASPI) is incredibly active in raising the issue through campaigning and demonstrations.
However, it’s not enough for women to rely on campaign groups to fight the battle on their behalf. Ultimately, every person in this country – regardless of sex – needs to take responsibility for their retirement planning. The gender pay gap means women must save harder while they are still working to enjoy the same financial resources as men during their retirement.
The introduction of auto enrolment pension schemes has gone some way to help women safeguard their finances for retirement, as everyone aged 22 and over will be required to contribute to a workplace pension unless they opt-out.
This doesn’t mean women can afford to ‘switch off’, though. Basic pension contributions made through auto enrolment may not be enough to fund a decent retirement – even when employer contributions to their pension pot are taken into account.
Particularly for women in their 30s and 40s who have not yet started saving for retirement, they are facing a race against time to build up their pension pot whilst they are still working. The standard contributions they make to a workplace pension scheme between now and when they retire won’t get them very far, as some people will live up to 40 years after retirement.
There is a state pension entitlement available to all men and women across the country, in addition to their private pension pot, but women who are working towards retirement have been penalised by changes made to the scheme back in 2010.
Whereas previously the state pension age for women was 60 years old, six years ago the government raised this to 65 years. From 2020, it will increase to 66 years of age, and between 2026-2028 it will rise again to 67 years old. This is to factor in increasing life expectancy. This means women will now have to work much longer before they receive state support.
If you’re worried about your retirement provisions, we can help offer you financial advice to shore up your savings plan. When you need to think about your financial plan, contact us for a chat.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
Investments and the income from them may go down as well as up and you may get back less than the amount you invested. Past performance is not a guide to future performance.
The financial conduct authority does not regulate wills, taxation and trust advice.