Financial Planning for Women / Pensions

Women taking control of the gender pension gap

In recent years there’s been a focus on the gender pension gap, and the impact it could have on women’s financial futures. George Howard, Chartered Financial Planner in our Middle East office, takes a look at how women are starting to take control of their retirement plans.

The gender pension gap remains a significant issue, especially given that it could derail many women’s future retirement plans. For a variety of reasons – including salary inequality and career breaks to raise children – women can find themselves the poor relation when it comes to building a retirement pot with savings often falling far short of those held by men. In fact recent findings show that by the time women reach 65, they will typically have  £69,000 saved into their pension pots. This is £136,800 less than the average man, who will have saved £205,800. Given women also have longer life expectancies, this is an area of financial planning which certainly needs attention.

Although research has shown that times are beginning to change (with awareness of the issue growing and more women attempting to close the gender pension gap by increasing their contributions) there’s still more to do too. Of course, some fundamental issues remain – not least the need to make equal pay a reality across all sectors. There’s also the concern that the burden of care for others – both to raise children and cope with ageing relatives – typically tends to fall on women. One interesting observation is that much of the damage to women’s pension pots happens during their 30s, a period where many take a career break to care for children.

The pension gap in action

To illustrate how a pension gap can impact retirement, it’s useful to consider a fictional example. Jane is 25 and is working as a solicitor in London with a salary of £60,000. She plans to retire at the State Pension age of 68. To follow are three scenarios showing how Jane’s pension plans could play out based in today’s terms.

Steady lifetime contributions

This situation sees Jane contributing 8% of her gross salary into her pension, totalling £4,800 per year throughout her working life with no career break. In this scenario, Jane would be able to draw a gross income of £42,500 every year through retirement, leaving £12,000 in her pension pot at the age of 100.

Factoring in a five-year career break

This scenario sees Jane contributing 8% of her gross salary but with a career gap between the age of 30 and 35 where no contributions are made. Here Jane would find herself with reduced funds at retirement and as a result could only draw a gross income of £28,000 per annum, with just £3,556 left in the pot by age 100.

Varied contributions with a career break

In this situation Jane takes the decision to contribute at a higher rate for the first five years of her career, to cover the shortfall during a five-year career break. To ensure she’s left in the same position as in the first scenario, Jane would need to contribute 14.75% or £8,850 for the first five years (contributing 11.75% personally). From age 35 onwards, following her career break, Jane’s contributions could drop to 8% (£4,800) each year. This would see her being able to draw a gross income of £42,500, as in the first scenario, with £10,000 left by age 100.

Steps to take to close the gender pension gap

The gender pension gap remains a reality for many women. Taking control of your pension pot, and boosting your retirement savings, is crucial. But what steps can you take? To follow are some of the key areas to consider:

  • Start early – as soon as you can, begin to make regular contributions to your pension. Even small contributions can add up over time, also allowing you to tap into the power of compound growth – created when you reinvest your returns, which then earn interest too.
  • Don’t forget the State Pension – check your National Insurance contributions and ensure you will receive the full UK State Pension when the time comes. At the moment you need 35 years of contributions and in most cases, you can opt to fill in any gaps. There’s also currently an extended deadline to make up missed contributions since 2006.
  • Be consistent – keep up pension contributions wherever possible during career breaks, maternity leave, or time working as a contractor. If you’re not working, it’s still possible to set up a pension and contribute up to £3,600 gross per year. This is available for UK residents and overseas residents who have left within six tax years and already have a personal pension in place before they left the UK.
  • Prioritise your pension – be disciplined about your pension and remember to increase your contributions as your career and salary increases.
  • Consolidate your retirement savings – don’t forget to track down any old or lost pensions and consolidate them where appropriate but take care to seek advice and make sure that you don’t lose any useful benefits.
  • Plan ahead – working with a financial planner could allow you to include some cashflow modelling to work out what you might need to save into your pension pot.

To discuss any aspect of your own pension or retirement planning please contact your nearest office.