Women’s pension savings have fallen woefully behind men’s pension pots in terms of size. So how can women prepare themselves for a financially comfortable retirement?
The gender pay gap has made headlines across the world: women everywhere from Australia to Denmark to the UK have demanded equal pay for equal work and employers are finally sitting up and taking notice.
But while the pay divide may be shrinking, a ‘hidden’ gap is emerging, often as a result of women’s lower salaries. This is the pension gap.
According to the Office for National Statistics (ONS), the average pension pot for a woman in England and Wales, aged 55 to 64, is £141,600. This sounds like a healthy sum, until two other statistics are taken into account: the fact that the average male pension pot for someone the same age is £237,100, and the fact that women are still expected to live longer than men.
In July, research from Fidelity International found women’s pension savings were, on average, almost 11 per cent lower than those of men.
Years of lower salaries, having time out of the office for children and not being able to catch up on missed workplace pension savings has left women with the prospect of having to live for far longer on a far smaller pension pot.
Helen Morrissey, pension specialist at Royal London, comments: “There are several reasons why women’s retirement incomes are less than men’s. These include time spent out of the workforce caring for children and other family members, as well as an increased likelihood to work part time.
“This means women are likely to contribute less to their pensions and also take breaks from making contributions. Over time this can make a significant difference to the amount of money saved for retirement.”
Old savings habits
Moreover, the Fidelity research suggested women tend to be far more cautious about their pension savings than men, meaning they tend not to take the sort of investment risk required when they are younger that will help boost long-term returns in the equity market.
One only needs to look at the returns on cash, especially since the financial crisis and the continual erosion of the bank base rate to 0.5 per cent in March 2009 – where it stayed until it ticked up in August this year to 0.75 per cent.
Women are not saving enough and they are not investing that money, so are missing out on higher returns over the long term. — Laura Suter, AJ Bell
Online savings calculators show that, based on the Consumer Price Index, if a person had invested £1,000 in cash in 2010 in the average UK cash Isa, by the end of December 2017, they would now have £842.36.
However, if someone had invested £1,000 in a FTSE 100 tracker, from 2010 to the end of 2017, they would have received £1,111.65.
Being too cautious is one old habit that women need to break if they are to help their pots grow. As Laura Suter, personal finance analyst at AJ Bell, says: “Women are not saving enough and they are not investing that money, so are missing out on higher returns over the long term.
“This leads to considerably smaller pension pots for women when they come to retire.”
Relying on the spouse
Ms Suter also warns against a tendency to rely on one’s spouse – another old habit that needs to be relegated to the scrap heap.
“The previous assumption that women can just rely on their husband’s pension income doesn’t always work in practice, as 76 per cent of women over the age of 60 are either single, widowed or divorced when they die”, she adds, citing recent figures from the Pensions Policy Institute.
Ms Morrissey agrees: “It can be tempting to rely on a partner’s retirement provision, particularly if it is more generous than your own. However, advisers must encourage women to make their own provision and start their own pensions and Isas wherever possible.
“This gives women added financial security in the event of the death of a partner or relationship breakdown. This is particularly the case where couples live together rather than being married.”
Their comments come as statistics from the ONS show a rise in later-life marriage, with more people over the age of 65 tying the knot for the second (or even third) time.
According to research from Investec Wealth & Investment (IWI) among women aged 55 and above, there was a big financial reason behind decisions to remarry.
Some 23 per cent of respondents rated their financial wellbeing as a "significant factor" behind the decision to remarry, while 9 per cent admitted it was the primary factor.
Advisers must encourage women to make their own provision and start their own pensions and Isas wherever possible. — Helen Morrissey, Royal London
Helen Medhurst-Jackson, financial planning director at IWI, comments: “For a married woman belonging to the baby boomer generation, it is often the case that the men in the family - father, spouse or partner - played a bigger role in managing the financial assets. As a result, more women may seek to marry for financial security.”
Therefore, it is unsurprising that for many women marrying later in life is the only viable option as their pension pots are just not going to carry them through on their own.
And there are many ‘silver splitters’ – people divorcing later on in life, which brings its own complications. Ms Morrissey warns: “For married couples make sure the pension is properly valued as part of any divorce settlement.
“All too often there is a focus on more tangible assets such as the value of a family home, but many divorcing spouses will have built up substantial pension rights which should be factored into any divorce settlement.”
So apart from marrying for money over love, and investing in the stock market as early as possible to build up long-term returns, what can advisers suggest?
Firstly, it is wise to encourage female clients to claim what is due to them. Royal London recently carried out analysis that showed confusion around child benefit changes led to approximately 63,000 mothers losing out on National Insurance credits, which could be used to boost their State Pension entitlement.
As a result, since the change was made, the total amount of future pension rights lost could exceed £1bn. So letting women know they should remain opted into the child benefit system, even if they are a high earning household, is extremely important in helping them to build up a decent state pension entitlement.
Ms Morrissey adds: “It’s also worth pointing out that under the old state pension system women could claim a state pension based on their husband’s entitlement.
“However, since the new state pension was introduced this is no longer allowed and women’s State pension entitlement is based on their own National Contribution record.”
It is also worth encouraging them to save as much as possible, rather than just the minimum, into any workplace pension. The employer top-up available on many defined contribution pensions is worth making the most of, as is the current tax breaks offered by the government on contributions made into workplace savings.
Also, remember there are Isas and other savings available, other than a workplace pension, which can help women to build up an overall portfolio of investments to help them fill that pension gap.
Simoney Kyriakou is deputy editor of Financial Adviser