5 essential tips to help employees avoid slipping through the pension gap

To mark International Women’s Day on 8 March 2024, joining the movement to inspire important conversations and encourage change and advancement, this article highlights the gender pension gap problem, and how employers can help support and educate employees to help narrow the gap.

Despite heightened media attention, a surprising number of employers have never even heard of the gender pension gap.

So, let’s start with the basics. The gender pension gap measures the percentage difference in pension income for female pensioners compared to male pensioners.

Trade union Prospect measured the gap at 37.99% in 2019-20 – more than double the gender pay gap in the same year, which was 15.5%[1].

Meanwhile, pension experts at the Government Actuary's Department looked at the gender pension gap in the Local Government Pension Scheme (LGPS) and found very similar results.

The table below shows the average LGPS pensions by gender, as of 31 March 2020[2].

Source: Gov.uk

These stats are troubling enough. But, as mentioned above, more concerning is the fact that, according to Aviva, almost 1 in 5 employers haven’t heard of the gender pension gap[1].

Since pensions are linked to pay and there are still disparities causing an ongoing gender pay gap problem, the gender pension gap is an issue that will only be resolved over time. It will also require commitment from the government, employers, and individuals.

Lower pay leads to wider gap in pension wealth between genders

As an employer, you'll be aware that many women are more likely to:

• Take career breaks to have children and raise their family
• Work part-time in order to balance their career with caring responsibilities
• Hold lower-paid positions
• Hold fewer management roles.

One or more of these factors combined can easily lead to lower pension contributions throughout at least part of a woman’s working life.

Lower pay leads to lower pension contributions

Gaps in a woman’s working life often lead to coinciding breaks in pension contributions.

Yet pausing pension payments, even for the briefest possible time, has a detrimental effect on the income employees will have when they retire.

Not only does a break mean they stop or reduce their own contributions to their pension, but employer contributions also stop or diminish in size, creating an even bigger problem down the line.

As such, if an employee decided to reduce their working hours but wanted to sustain their retirement savings, they’d need to up their contributions significantly to make up the shortfall.

Since a workplace pension may be a woman’s main source of income at retirement, it’s crucial that employers do what they can to help keep female employee pension savings on track, wherever possible.

While pension contributions are unlikely to be a deciding factor when considering whether to work part-time or take a break, it’s important that people understand the long-term impact on their pension before making that decision.

So, here are some useful tips you could pass on to your employees and help ensure they understand the implications of their decisions.

5 essential tips for employees considering pausing their pension contributions

1. Keep paying into your pension

When it comes to pension savings, even a small regular contribution can make a difference. This is because it’s invested with the aim of generating compound growth over time, although this is not guaranteed.

2. Make your finances a family affair

If you’re in a long-term relationship, one of the most constructive steps you could take is to discuss pension savings with your partner.

For instance, if your partner continues to earn while you’re taking time off to care for your children, they could contribute to your pension. They could either make additional payments to your pension pot or divide what they’d usually pay into their own and pay some into their pot and some into yours.

Make sure you’re involved with managing your finances and understand all the implications of your decisions – now and in the future. If you’re married or in a civil partnership, this is particularly important and, should you find yourself getting divorced, pensions should be included in your considerations when dividing your assets.

3. Top up your pension

Whether you work full-time or part-time, make sure you’re a member of the workplace pension.

If you're between age 22 to 66 (the current State Pension Age), and earning at least £10,000 in the 2023/24 tax year, you will be automatically enrolled in your workplace pension.

Under current auto-enrolment rules, the minimum pension contribution is 8%. This is usually made up of a 3% contribution from us (your employer) and a 5% employee contribution (taken from your gross salary).

One simple way to boost your pension pot is to increase your contributions. By increasing the amount you pay into your pension each month, you’ll also benefit from more tax relief from the government, helping to boost your pot further.

Tax relief is automatically paid at the basic Income Tax rate of 20%. If you’re a higher- or additional-rate taxpayer, you can claim additional relief through self-assessment.

The government provides relief on all pension contributions up to the Annual Allowance, which stands at £60,000 (or 100% of earnings if lower) for the 2023/24 tax year.

So, if you’re taking a break from work, think about topping up your pension before you go or when you return. If you can afford to do so, increasing your contributions (even for a brief period) could help offset some or all of the payments you’ve missed.

4. Check your National Insurance contributions

To get the full State Pension when you retire, you need 35 years of National Insurance contributions (NICs) or credits.

Women taking time off to care for a child can get National Insurance credits, but this only applies if you claim Child Benefit.

If you think you may have gaps in your NICs history, check your National Insurance record on the government website.

Should you have gaps, you may be able to pay to fill these now. Knowing if this is the right option for you may not be straightforward, so if in doubt speak to a financial planner for advice.

5. Know your number

The Pension and Lifetime Savings Association have calculated how much you need in retirement.

The table below shows the summary highlights.

Source: Retirement Living Standards

For more detailed information visit the retirement living standards website or, better still, talk to a financial planner[1].

A professional expert will be able to help you understand where you are now and help you devise a retirement plan that is bespoke to you, your circumstances, and long-term objectives.

Empower all your employees with financial and retirement education

Your workplace pension scheme is one of the most important employee benefits you can offer. It can form a solid foundation to creating financial security in later life.

The expert consultants at Aspira will work with you to help make sure your workplace pension is delivering great outcomes for you and your employees.

Another way we can help you support your employees’ financial wellbeing is through workplace advice. From group presentations to assessing employees’ existing pension arrangements and providing ongoing advice, we can help employees stay on track to meet their retirement goals.

Get in touch

To find out more about how you can support employees who may be at risk of falling through the gender pension gap or to discover ways you could boost employee wellbeing, please get in touch.

Email info@aspirafp.co.uk or call us on 0800 048 0150.

Please note

The information contained in this article is based on the opinion of Aspira and does not constitute financial advice or a recommendation for any investment or retirement strategy.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

Workplace pensions are regulated by The Pension Regulator.

[1] https://www.retirementlivingstandards.org.uk/details

[1] https://www.aviva.co.uk/business/business-perspectives/featured-articles-hub/pension-gap/

[1] https://prospect.org.uk/article/what-is-the-gender-pension-gap/

[2] https://www.gov.uk/government/news/gender-pensions-gap-report

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