Many women approach retirement with much smaller pension pots than men. This can be the result of a range of factors, not least the gender pension gap. George Howard, our Chartered Financial Planner, takes a look at what can be achieved if women boost their pension contributions by just a small sum.
One of the most important, and fundamental, elements of any financial plan is a pension. But for many women pensions take a back seat for lots of reasons including career breaks, time out to raise a family and caring for older relatives. This can leave many making fewer contributions and approaching retirement with a smaller pension pot to support them through later years. Alarmingly the statistics behind the gender pension gap are quite sobering standing at 17% at the beginning of women’s careers but reaching 56% at retirement compared to men.
Yet new research shows that a very small increase in contributions – just 1% – could help many women boost their pension pots. The research calculated the preferred income which women would like to receive during retirement, and determined the size of the pension pot needed to deliver that amount. The shortfall – a total of around £67,000 or the equivalent of two years and four months of income – could be met by women in their 20s raising their pension contributions fairly modestly, from 8% to 9% of their salary. And there are other opportunities to boost pension savings too, including making ad-hoc payments when savings allow, or depositing any lump sums or bonuses if and when received.
Challenging the norm
Sadly, there are a number of factors which contribute to many women’s ability to save for retirement. The gender pay gap sees women, on average, paid less than men across the workforce. Men too are less likely to experience a career gap which might force women to pause their pension contributions for a short period of time, perhaps whilst they are on maternity leave. Legislation such as shared parental leave may help start to turn the tide, although it has not been particularly well embraced since being introduced in the UK in 2015, and it remains challenging for women to focus on pension savings with a young family. There are also trends which are harder to tackle – not least the fact that men are currently far more likely to prioritise pension savings than women.
Thankfully there are some useful steps which can help. As a first stage, it’s worthwhile to maximise employer contributions through any available workplace pension; tax relief (subject to certain limits) ensure any funds grow immediately by at least 20%. And all tax free too. It’s also worth bearing in mind that just small increases, or one-off payments when circumstances allow, can make a significant difference when it comes to the size of a pension pot at retirement.
When it comes to pension planning some of the conventional rules apply – it’s never too early to start saving. For women making pensions a priority as soon as possible can help ease the impact of any career breaks down the line and mean there’s more opportunity to reduce any pension gap in later life.
Whilst there are often other important financial goals to achieve, like buying property, getting married or having children, it’s important to save at least something into a pension to help secure financial freedom in the future. Whilst your own vision of financial freedom will be individual to you, having your own unique plan will provide some structure in achieving your goals.
To discuss any aspect of your pension or retirement planning please contact your nearest office.