A large-scale study by Prudential has found a significant gender gap in the expected pension income of people retiring this year. On average, men expect to receive £19,600, while women anticipate a retirement income of £12,200.
Why women get lower pensions
The gap between men and women’s pensions is caused by several factors. On average, women tend to earn less than men – by around 21% in the public sector and 29% in the private sector. Women’s pensions are also hit by contribution breaks, which may happen when they stop work to have and bring up children.
State pension equalisation
Gender inequality is less of a problem with state pensions than it was in the past, as mothers now receive national insurance contribution (NIC) credits for the time they are out of work bringing up children. Also, both men and women now require only 30 years of NICs, rather than the 39 for women and 44 for men that were required for the full state pension before 2010.
Women will now also spend longer working, with their state pension age rising from 60 to 65 between 2010 and 2018. This means that they will be making NICs for longer and are far more likely to qualify for the full state pension.
Private pension inequality
Men tend to stay in continuous employment for longer and have less contribution gaps in their pension. Women who take time off to raise children may get state pension credits but they tend to stop paying into private pensions, resulting in a smaller pension pot. Lower pay and lower contribution rates can also reduce the pension savings accumulated by women.
Gender affects annuity rates
If women accumulate less pension savings during their working lives than men, they also encounter a gender gap when they come to turn their pension pot into retirement income by buying an annuity.
This is because life expectancy is higher for women than men – currently 82.6 years for women and 78.4 years for men. Annuity providers give men higher annuity rates than women because, statistically, they will not have to pay out for as long.
For the same amount of pension savings, this means that a woman is likely to receive less per year than a man.
Planning ahead for retirement
Commenting on the latest Prudential findings, Which? pensions expert Ian Robinson said: ‘Although the gender gap is narrowing, it’s true that women need to check their expected pension particularly carefully. If there are gaps in their national insurance contribution record, it may be possible to plug these by making additional payments and securing extra state pension.
‘If they have missed out on an employer’s pension scheme, they may benefit by paying into a personal pension. The tax incentive makes this an attractive way to save for the future.’
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