According to the Department for Work and Pensions, the average woman aged 55–59 has built up a private pension worth around £81,000, compared to £156,000 for the average man.
That’s a significant gap, with a big impact on retirement income. At age 60, assuming an annuity rate of around 7%, which might be achievable in the current market, these pension pots could translate to an annual income of around £6,000 for women and £11,000 for men.
That’s £5,000 less each year in retirement.
Why does the gap exist?
The gender pension gap is not caused by one single factor. Instead, it tends to reflect differences in working patterns and life stages:
- Career breaks: taking time out of work for childcare or other family responsibilities can reduce contributions into pensions
- Part-time work: more women work reduced hours, which can mean lower earnings and, in some cases, missing out on auto-enrolment
- Caring responsibilities: supporting elderly relatives can also affect working lives
- Lower lifetime earnings: even small differences in annual pay compound over a career, leading to smaller pension pot
Smaller contributions over time mean less investment growth by retirement age.
What can you do to help close the gap?
1. Start early
The sooner you begin saving into a pension, the more time your money has to grow. Even modest contributions made early in your career can build up significantly thanks to compound growth.
2. Make the most of your workplace pension
Employers must provide an employee pension scheme and auto-enrol eligible staff. The minimum contributions are 5% from you and 3% from your employer, but many schemes allow you to contribute more, and some employers will match your higher contributions.
3. Keep contributing during parental leave
If you take maternity leave, your employer will usually continue contributions for at least 39 weeks if you qualify for statutory maternity pay. Your own contributions are based on your maternity pay, so if you can afford to top up, it helps avoid shortfalls.
4. Consider a private pension
If you’re self-employed, this is essential, but even if you’re employed, an additional personal pension can be a valuable way to save. Pensions are highly tax-efficient: a £10 contribution can cost just £8 for basic-rate taxpayers once tax relief is applied. Over time, growth and compounding can potentially make a significant difference.
5. Seek expert advice
At Continuum, we understand the challenges of building the retirement you want. We can provide detailed projections, show the impact of different contribution strategies, and help you find ways to strengthen your long-term financial position.
The bottom line
The gender pension gap is real, but it’s not inevitable. With the appropriate planning and advice, you can take steps to help build a stronger, more secure retirement income.
Talk to Continuum today and let us help you put a plan in place.
Gender Pensions Gap in Private Pensions: 2020 to 2022 – GOV.UK
Protecting your workplace pension after having a baby | MoneyHelper
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
The tax treatment of pensions in general will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate taxation advice.
