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19 Jun 2022

Women need to work until 83 to close gender pension gap: how to boost your pot

Report finds women need to work an extra 18 years for their pension to match with men's

Women are reaching retirement age with £136,800 less in their pension than the average man, according to a new report by Now Pensions. 

Although the average pension pot has almost doubled to £111,600, the report suggested women’s savings have hardly increased at all.

The pension provider said women would need to work an additional 18 years in full-time employment to close the gender pension gap - which would mean working until the age of 83, rather than 65.

Here, Which? explains why the gender pension gap exists, and offers solutions on how you can keep your retirement pot on track.

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What is the gender pension gap?

The gender pension gap refers to the different retirement outcomes for men and women. 

Now Pensions estimates this gap is twice the size of the gender pay gap, as women’s retirement wealth averages only one-third of men’s in the UK.

According to its latest report with the Pension Policy Institute (PPI), women have an average of £69,000 in their pension, whereas men's average retirement savings stand at £205,800.

This is particularly worrying, considering women's average life expectancy is 3.7 years longer than men's, meaning they need their pension savings to sustain them for longer.

Why do women have smaller pensions?

There are a lot of factors behind women generally having smaller pension pots than men, from tending to have lower incomes to being more likely to take time out of work.

Here are some of the main factors causing the gender pension gap.

Not eligible for auto-enrolment 

Since 2012 employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement. 

The minimum total contribution under auto-enrolment rules is 8%, with the employee contributing a minimum 5%, and the employer paying a minimum of 3%. 

To qualify for auto-enrolment, you need to be aged 22 or over, below the state pension age, working in the UK and earning more than £10,000 a year. 

Now Pensions says 3m women are locked out of a workplace pension as they do not meet the criteria for auto-enrolment. This is likely to be because women are more likely to work part-time, or have multiple lower-paid jobs, which therefore mean their salaries come in below the threshold. 

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Spending more time out of the workforce  

According to Now Pensions' report, a quarter (27%) of women work mostly full-time throughout their careers, compared to almost half (45%) of men. 

Women typically spend 10 years away from the workforce to start families, care for children and other relatives. 

This 10-year gap contributes to both the gender pay gap, and the gender pensions gap, as women who take time away from work tend to have fewer opportunities for career progression and higher salaries.

The impact of divorce

There are concerns that ‘no fault’ divorce legislation brought in earlier this year could risk greater inequality when it comes to pensions and later-life finances. 

Pension pots are typically the second-largest asset in a marriage - after property - however, women often walk away from divorces short-changed. 

According to the report, less than two in 10 divorcees have a pension sharing order, which means pension wealth is unequally distributed between both partners. As a result, it found divorced women are reaching retirement age with just 12% of the pension wealth of men. 

What can be done to close the gap?

To increase pension contributions from women who are left out of auto-enrolment, Now Pensions has suggested removing the £10,000 trigger, as well as the lower earnings limit on qualifying earnings - this currently means pension contributions are only based on what you earn above £6,240.

The government has pledged to remove the lower earnings limit by the 'mid 2020s’, and confirmed the auto-enrolment trigger would remain at £10,000 for 2022-23. 

A government spokesperson told Which?: 'Automatic enrolment has helped millions more women save into a pension, with participation among eligible women in the private sector rising from 40% in 2012 to 86% in 2020 – equal to that of men.

'Our plans to remove the Lower Earnings Limit for contributions and to reduce the eligible age of being automatically enrolled to 18 in the mid-2020s will enable even more women to save more and start saving earlier.'

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6 ways to boost your pension pot

Here are our tips for keeping your pension on track. 

1. Claim National Insurance credits for the state pension 

If you take time out of work to raise children, you'll stop paying National Insurance contributions (NICs) on your income, which determine your state pension entitlement. 

However, if you claim child benefit, you'll get automatically get National Insurance credits, which will still count towards your NIC record.

2. Increase your contributions 

Check to see how much you're paying into your pension and increase contributions if you can afford it. For example, you could increase your percentage contribution if you've recently had a pay rise, or just pay in a lump sum when you can.

Some employers match your contributions, so even a 1% increase could make a big difference to your pot in the long run.

Research from the Pensions Policy Institute found that a woman earning an average income in a full-time role who starts saving for her pension at the age of 25 can take a 10-year career break to care for her family and still enjoy the same pension income as her male counterpart by saving an additional £20 per week throughout her working life. 

3. Plan ahead for maternity leave

The crucial tipping point that makes most women fall behind on their pension contributions is when they leave the workforce to have a baby. 

Depending on how much maternity leave you take, your income may drop and result in smaller pension contributions during this time. 

But, some forward-planning can get around it. Firstly, it's a good idea to work out how much your contributions will be reduced by, then to catch them up, you could increase your employee contributions before you leave, when you return, or a combination of both.

4. See if your partner can boost your savings

If you're part of a couple and one of you earns more than the other, or one is taking time out to have a baby while the other carries on working, you could decide to even up both pension pots by having the higher earner pay into the lower earner's pension.

5. Consider a lifetime Isa

If your earnings don't qualify for auto-enrolment - or you have extra money to save for retirement - you could try a lifetime Isa. 

The lifetime Isa is a tax-free savings or investments account designed to help savers either buy their first home or save for retirement. 

For every £4 you save, the government will add £1 up to a maximum of £1,000 every tax year - but you can only open one of these accounts if you're aged 18-39.

6. Get free pensions advice

You can get free, impartial guidance from the Money and Pensions Service

We also have a wealth of free Which? pensions advice - our guide on how to plan your retirement is a good place to start.