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Women expect to be £6,000 worse off than men in retirement: how to boost your income

Gender gap at second highest level in a decade

New figures published today show a £6,000 gap in the annual income expected by women in retirement compared to men. 

Insurance company Prudential found women expect to retire on an annual income of £14,300 in 2017, while men expect £20,700 a year. As the chart shows, the £6,400 gap in retirement income between genders is the second highest in the decade the insurer has been carrying out this research.

This comes as new data from the Office for National Statistics revealed more than half of working women aged under 60 do not have confidence that their retirement income will meet their living standards.

Why do women have smaller pensions than men?

Prudential says many women take career breaks during their working lives and change their work patterns to look after children, which results in smaller pensions and a lower state pension in retirement.

In order to qualify for the full state pension, which is currently £159.55 a week, or £8,296 a year, you need 35 years’ worth of National Insurance contributions. If you fall short, your state pension is reduced on a pro-rata basis.

For example, if you reach state pension age with 30 years’ worth of contributions – five short of the threshold – your income would be reduced by £22.80 per week.

The good news? Prudential believes the gender gap will narrow in future. It says: ‘with a greater number of women staying in the workforce for longer these days, and employers increasingly offering more flexible working patterns, the outlook is more positive for women’s retirement incomes in the future.’

Indeed, the Department for Work and Pensions told Which? that due to introduction of auto-enrolment, where workers are automatically signed up to a pension savings scheme, it expects ‘3.6 million women to be newly-saving or saving more by next year compared to 2012’.

It added that the new state pension, introduced in April 2016, would leave three million women better off by £550 a year, on average, by 2030.

A spokesman said: ‘There is more to do to ensure that women have the opportunity to build up the pensions savings they will need, which is why we will be increasing minimum contributions for workplace pensions over the coming years.’

How much do I need for a comfortable retirement?

Research carried out by Which? earlier this year found that couples need an annual income of £18,000 to cover the essentials in retirement. For a comfortable retirement, including holidays and leisure activities, couples need £26,000 annually, while a luxurious retirement requires around £39,000 per annum.

In order to generate a £26,000 income, we found that a couple would need a pension pot of £210,000. For the couple to receive £39,000 a year, that pot would need to be £510,000.

How can women increase their state pension?

If you have gaps in your National Insurance record, you can buy ‘voluntary’ Class 3 contributions to plug them. This can prevent your state pension entitlement from being lowered.

The price depends on how many years you have to fill and when the gaps appeared, but the rate for Class 3 National Insurance contributions in 2017-18 is £14.25 per week, or £741 a year.

You can find out more in our detailed guide to topping up your state pension.

This story was updated at 10:50am to add a comment from the Department for Work and Pensions.

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