What is the gender pensions gap and how could you close it?

With International Women’s Day on 8 March and Mother’s Day on 10 March 2024, it’s a perfect time to raise awareness of the gender pensions gap and explore how you could close any gaps you may have in your retirement savings.

The gender pensions gap is the percentage difference between female and male private pension wealth around the typical minimum pension age of 55.

The most recent data from the Department for Work and Pensions (DWP) shows that the gender pensions gap was 35% in 2023[1]. In fact, figures published by Legal & General suggest that, on average, women retire with a pension pot that’s half the size of their male counterparts[2].

While the causes of this gap are complex and varied it’s important to be aware of the potential problem and understand the steps women could take to improve their financial future.

The gender pay gap becomes the gender pensions gap

There are many factors that contribute to the gender pay gap, which can lead to a gender pensions gap.

• Lower pay – Women are still, on average, paid less than men and lower pay generally means lower pension contributions from the employee and their employer.
• Lower level, part-time work – Women are less likely to hold senior positions and are more likely to work part-time, which often means they take home a lower salary than their male counterparts. According to data published by the House of Commons Library, in 2023 the number of women working part-time (38%) was double that of men (14%)[3].
• Career breaks – Women are more likely to take career breaks, for example, to care for children or other family members. This can lead to a pause in pension contributions which often means that women have less in their pension pot by the time they retire.
• Divorce – Research published by Professional Adviser has revealed that women are the most likely demographic to suffer from the exclusion of pensions in divorce settlements[4]. Pensions are often one of the most valuable assets an individual holds. So, waiving rights to a partner’s pension could have a significant impact on a woman’s financial wellbeing in later life.
• Lack of financial confidence – Research published by the Financial Times shows that women are more likely to have lower financial confidence, which could impact their attitude to pensions[5].

There is also research to suggest that the gender pensions gap, which often exists from the start of a woman’s career, may increase over time. Figures published by Legal & General, show that the initial gap is 16% but can double by the time a woman reaches her 40s[6].

3 steps women can take to reduce the gender pensions gap

1. Review your pension, set savings goals and consider increasing your contributions

Regularly reviewing your pension and setting savings goals could ensure that you have enough for a retirement that may potentially last 30 years or more.

It might be helpful to think about when you want to retire and what kind of lifestyle you want to have. This could show you how much retirement income you’ll need.

Read more: 5 key steps to understanding how much income you’ll need in retirement

A financial planner can use cashflow modelling to forecast your future finances and align your goals with your pension savings strategy.

Once you’ve set clear goals, by regularly monitoring your pension, you can quickly spot if you’re veering off track and take action to rectify the situation. For example, you might decide to boost your pension further by increasing your contributions.

A benefit of saving this way is that you’ll receive generous tax relief on any pension contributions you make, so £100 only “costs” you £80. In addition, your employer must contribute a minimum of 3%, and many pay more than this.

If you receive a lump sum or a pay rise, this could provide a good opportunity to increase your contributions.

Unfortunately, according to research published by Standard Life, women are less likely to increase their contributions than men, which could contribute to the gender pensions gap[7].

2. Build an investment portfolio

If you’ve considered investing before but felt overwhelmed by the amount of information and jargon involved, you’re not alone. Research published by MoneyWeek shows that 74% of women are too nervous to invest[8].

And yet, letting your nerves put you off investing or taking a highly risk-averse attitude to your portfolio, could mean you’re missing out on the opportunity to maximise your retirement savings.

Investing over the long-term could help you build the wealth you need for your ideal future.

If you’re not sure how to get started, a financial planner can help you build a diversified portfolio with a level of risk that aligns with your circumstances and life goals. 

3. Put a plan in place for career breaks

You may need or want to take a career break for a variety of reasons – to have children, care for a relative, and so on.

Putting a plan in place to protect your pension could ensure that you remain on track to achieve your long-term financial objectives.

For example, you might want to increase your pension contributions before you take a break, continue paying into your pension during your break, or ask your partner to contribute to your pension while you’re not working.

Get in touch

If you’re concerned about a gap in your retirement savings or would like to discuss ways you could improve your financial wellbeing, we can help.

Please email us at info@aspirafp.co.uk or call us on 01454 632 495.

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.

The Financial Conduct Authority does not regulate cashflow planning.

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.gov.uk/government/statistics/gender-pensions-gap-in-private-pensions/the-gender-pensions-gap-in-private-pensions#the-gender-pensions-gap

[2] https://www.legalandgeneral.com/retirement/pensions/guides/gender-pension-gap/

[3] https://commonslibrary.parliament.uk/research-briefings/sn06838/

[4] https://www.professionaladviser.com/opinion/4160469/fair-financial-settlement-divorce-gender-pensions-gap

[5] https://www.ft.com/content/5b8888b4-b946-45ce-98c7-df515bcef64c

[6] https://www.legalandgeneral.com/retirement/pensions/guides/gender-pension-gap/

[7] https://www.standardlife.co.uk/about/press-releases/women-more-likely-to-make-minimum-payments

[8] https://moneyweek.com/personal-finance/605478/gender-investment-gap