Back in April, we asked What effect will rising inflation have on the gender investment gap? and reported that risk aversion could see cash savings lose value in real terms.
An increase in investment among women has seen two-thirds (67%) investing outside of their retirement. This marks a 50% increase from 2018 and has helped to close the adequate savings gap according to Scottish Widows’ 2021 Women and Retirement report.
The latest research, though, confirms that a gender retirement gap still exists.
In fact, MoneyAge reports that the average woman needs to work for an additional 18 years to save the same amount as an equivalent man.
But what is causing this gender gap in pensions, and how can advice help you to close it?
Keep reading to find out.
Job roles and work patterns make pension saving harder
Back in 2020, Scottish Widows found that:
- 75% of part-time workers are women
- Women in full-time work receive, on average, £6,100 less as a median wage
- Across all employment, women earn £10,800 less annually, on average.
Lower wages, coupled with potential gaps in contributions – typically around childbirth – lead to a £100,000 gap in pension savings at retirement according to the 2020 report.
The latest figures, as published by MoneyAge, put the figure even higher, at £136,000.
Women spend an average of 10 years out of work to start a family and care for children. Yet, wage disparities mean that the gap at retirement would require a woman to work an additional 18 years in full-time employment.
Despite women’s employment being at an all-time high (72%), one in six women is currently ineligible for automatic enrolment, severely limiting potential pension savings.
Longevity and years spent in ill health mean women need to save more than men
The issues of the gender retirement gap are made more worrying because, ideally, women need to be saving more than men.
On average, women live around three years longer than men, meaning an additional three years of pension provision. Not only that, but women are also more likely to need care in later life, creating another potential drain on their retirement savings.
A recent Which? report into income in retirement found that the average household spends around £2,333 a month, or around £28,000. Three years of additional life would require an extra £84,000 in pension income.
Meanwhile, the average cost of a UK nursing home is £888 a week, around £41,000 a year.
Financial advice can help to bridge the gender gap
1. Increase your contributions and make use of “carry forward”
You can contribute up to £40,000 (or 100% of your pensionable earnings, if lower) each year and receive tax relief. This is effectively a free top-up from the government, paid automatically at the basic rate of 20%. If you are a higher- or additional-rate taxpayer you can claim even more relief through your self-assessment tax return.
Be sure to make the most of “carry forward”, which allows you to use unspent allowance from up to three years ago.
2. Up your workplace pensions contributions
If you are eligible for auto-enrolment, be sure to make the most of it. When you contribute, you effectively receive a free top-up from your employer.
Consider increasing your contribution above the minimum. You might even find that your employer is willing to match your contribution.
Does your employer offer salary sacrifice? If so, look into paying into your pension using this method.
It effectively lowers your salary by making pension contributions pre-tax. This can have National Insurance benefits for you and your employer, which could make a sizable difference in the long term.
Be aware though, that this could have unexpected consequences too. Your ability to get a mortgage in the future might be affected where salary is used in eligibility calculations, and your entitlement to income protection insurance might be lower if your salary is decreased.
3. Invest savings to inflation-proof your cash wealth
Despite the Bank of England’s recent decision to increase its base rate, high inflation still means that your cash savings are effectively losing value in real terms.
Ensure you have an emergency fund in an easily accessible account and consider investing the rest. A long-term investment – aligned to a specific goal and undertaken with full knowledge of your attitude to risk – could allow your money to keep pace with, or even beat inflation.
Get in touch
At Globe IFA, we can take a holistic look at your finances, helping you to live your dream retirement, whatever happens in the wider economy.
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
