Women need to work ’40 years more’ than a man to get same pension pot – how to overcome it

YOUNG women today will typically need to work nearly 40 years longer than men to get the same pension pots, calculations reveal.

They can expect to have £100,000 less on average in private funds at retirement, Scottish Widows said.

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Lower average earnings, part-time work only and taking time out to care for families mean women would take nearly four decades to catch up.

As International Women’s Day today highlights progress in gender equality, there is still some way to go before the pensions gap closes.

A woman currently in her 20s will have to work 37 years longer than a man the same age to get the same retirement income, the study says.

It means men save £354,000 in total over a lifetime, while women only have £254,000 to retire on.

Jackie Leiper, from Scottish Widows, said: “We know that young women have been some of the hardest hit by the short-term financial impact of the pandemic.

“This has only exacerbated the challenge of reaching pensions parity.

“At the same time, caring responsibilities and high childcare costs are keeping women out of the workforce, lowering their contributions and denting their pension pots.”

The pensions pay gap has been a problem for years, but has been worsened by the impacts of the coronavirus pandemic, which has disproportionately affected women.

On top of the existing inequalities around pay, caring responsibilities and unpaid labour, women are also more likely to have been hard hit by lockdown and been furloughed.

For instance, a separate study from Fidelity found that nearly one in four women have suffered a fall in their income in the past 12 months.

These women have lost as much as £5,500 of their annual salary or around a quarter of their income on average, according to the calculations.

Any reduction in hours or drop in pay due to Covid-19 has a knock-on impact on pension outcomes.

For those working part-time, this can mean lower contributions or missing out on auto-enrolment altogether.

Maike Currie, investment director at Fidelity International said: “Women have been – and continue to be – disproportionately affected by the pandemic.

“Female-centric industries have borne the brunt of job losses, furlough and income reductions, and women continue to balance this with more unpaid work like childcare and elderly care.”

Experts are also calling on the UK government to make changes designed to create a retirement savings system that works for women.

For instance, consumer group Which? is campaigning for the introduction of a ‘new family’ pension contribution to help address the shortfall in pension saving among new mothers.

Gareth Shaw said: “Our research has shown that women face significant disparities when it comes to saving for retirement, with mothers particularly at risk of retiring with smaller pensions.

“To address this imbalance, the government should make a contribution to the pensions of first-time parents to ensure they can retire with an adequate pension pot.”

How to overcome the pensions gap

Until the causes of pay inequality are addressed, it will always be harder for women to build up an adequate retirement pot.

But even though the UK pensions industry systematically fails women, there are steps you can take now to make sure that your pension is up to scratch.

Here’s some of the top tips for overcoming the barriers and setting yourself up for a healthy retirement:

• Make sure you get the maximum state pension

You need 35 years of NI contributions to receive the full state pension.

Women who take time off work to care for children or other family members are usually entitled to National Insurance Credits.

Stay at home parents with children under the age of 12 automatically get Credits as long as they are registered for child benefit.

However, lots of people decide not to bother registering if their partner earns over the £50,000 threshold when you have to start paying the money back.

But if you go down this route then you miss out on the national insurance credits. You can get round this by applying for the benefit but selecting the box that says you don’t want to receive the money.

You also get the credits if you receive Carer’s allowance, so you need to make sure you’ve applied for this if you can’t work due to caring responsibilities.

You can check your National Insurance Record to see if you’re on track to get the state pension on the government website.

If you don’t have enough years, and you don’t qualify for credits you can choose to make voluntary contributions to make up the shortfall.

• Make sure you’re saving into a pension

If you are over 22 years old, under state pension age and earn a salary of at least £10,000 from one employer, you should be auto-enrolled into a pension at work.

Under this scheme you contribute 4% of your earnings. the government gives you 1% tax relief and your employer pays in 3% too.

This means that for every pound you save, you’re getting a free pound from your boss and the government.

Unfortunately, lots of women miss out on auto-enrolment, either because they don’t earn enough, because their wages are split between lots of bosses or because they are self-employed.

For instance, if you had three separate jobs earning £7,000 per annum each, you’d make more than double the auto-enrolment threshold. But because the work is split across different workplaces, you don’t automatically qualify.

You can ask to join your company’s scheme even if you aren’t automatically enrolled.

If you earn more than £6,240 but less than £10,000 your employer has to contribute if you ask to join

If you earn less than £6,240 a year you can still ask to join that employer’s pension scheme, but your employer doesn’t have to contribute.

If you’re self-employed you don’t get auto-enrolment, but you can still choose to set up a private pension. You won’t get company contributions but you will get government tax relief. Read our guide which outlines the best ways to save.

You may also want to consider a Lifetime ISA. If you’re under 40, you can set up one of these schemes and the government will boost your savings by 25%.

You can only save up to £4,000 each year (meaning a maximum annual bonus of £1,000) and there are penalties if you take your money and haven’t used it for a pension or property. Read our guide to find out more about saving with a Lisa.

• Maximise your pensions contributions

The best way to get on track for a healthy retirement is to maximise the amount your are saving into your pension while you are working.

The Scottish Widows research found that if the average woman were to up her contribution at the start of her career to save an extra 4% into her pension, her pot at 68 could be £329,139.

This would reduce the gender pensions gap by almost £75,000. Upping contributions by 5% would would close the gap almost completely.

It’s worth checking your workplace’s pension policy, as many companies offer more generous schemes that the auto-enrolment minimum. Good employers often say that if you pay more they will too – which makes it far easier to save.

Even if you can’t afford to maximise your pension, saving a little extra each month goes a really long way to building a good retirement income.

• Delay retirement

If you’re approaching retirement and you don’t think you have enough squirreled away, one option is to work for longer, perhaps by going part-time.

This allows you to keep saving, whilst also reducing the number of years that you need to try and live off your pension savings.

If you delay retiring and defer your state pension you should also get extra money for it, which can bump your annual income.

• Maximise your pensions contributions

The best way to get on track for a healthy retirement is to maximise the amount your are saving into your pension while you are working.

The Scottish Widows research found that if the average woman were to up her contribution at the start of her career to save an extra 4% into her pension, her pot at 68 could be £329,139.

This would reduce the gender pensions gap by almost £75,000. Upping contributions by 5% would would close the gap almost completely.

It’s worth checking your workplace’s pension policy, as many companies offer more generous schemes that the auto-enrolment minimum. Good employers often say that if you pay more they will too – which makes it far easier to save.

Even if you can’t afford to maximise your pension, saving a little extra each month goes a really long way to building a good retirement income.

• Delay retirement

If you’re approaching retirement and you don’t think you have enough squirreled away, one option is to work for longer, perhaps by going part-time.

This allows you to keep saving, whilst also reducing the number of years that you need to try and live off your pension savings.

If you delay retiring and defer your state pension you should also get extra money for it, which can bump your annual income.

If you delay retiring and defer your state pension you should also get extra money for it, which can bump your annual income.

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This post first appeared on thesun.co.uk