The gender agenda
The gender gap shows no sign of closing as research suggests men will, on average, be 45% better off in retirement than women.
The publication of BBC stars’ salaries has sparked a national debate about the gender pay gap, but it is not the only recent example of women lagging behind men financially. A study published in June revealed that women retiring this year will, on average, be significantly worse off than their male counterparts.
The research by Prudential, which tracks the financial plans and aspirations of people planning to retire in the year ahead, shows that, on average, women will be £6,400 a year worse off than men, and nearly £200 a year worse off than women who retired in 2016.
Women retiring this year expect an average annual retirement income of £14,300, which is the second highest on record, although slightly down on the £14,500 for women retiring in 2016. Meanwhile, men retiring this year expect an average annual retirement income of £20,700 – £900 more than last year’s male retirees.
Clearly, women’s lower earnings are restricting how much they can afford to save into a private pension, but more part-time work and frequent career breaks to look after children often leads to a reduced State Pension due to fewer years of National Insurance contributions. That turns women’s tendency to save less into a private pension into an even bigger issue.
“The best way to secure a good quality of life in retirement is to save as much as possible from as early as possible in your working life. Consulting a professional financial adviser to ensure that retirement financial plans are on track is a sensible route for many,” says Kirsty Anderson, a retirement income expert at Prudential.
“For anyone who takes a career break, maintaining pension contributions and, where possible, making voluntary National Insurance contributions after returning to work, should help to minimise the impact on their retirement income.”
Automatic for the people
It is even claimed that auto-enrolment is indirectly discriminatory against women. Auto-enrolment is the government’s attempt to reverse the decline in pension saving by making companies place certain employees into a workplace pension, to which those companies must then make contributions. However, to be eligible, you need to earn at least £10,000 a year in any one job.
As women are more likely to work part-time due to family commitments, they are more likely to earn less than the auto-enrolment trigger. Thus, disproportionate numbers of women are being excluded from a system that should be designed to support them. While it’s true that auto-enrolment is improving the retirement prospects of many women, there are swathes for whom the term ‘auto-enrolment’ is a misnomer.
However, Ian Price, divisional director at St. James’s Place, believes the earnings trigger shouldn’t stop anyone from saving for retirement.
“Even if you earn less than £10,000 in one job, you can still join a workplace pension or set up your own private pension. Contributions into both are tax-free, subject to an annual limit, and your employer might make contributions into the workplace scheme,” he says. “Even if you aren’t earning, you can put up to £3,600 into a pension each year and still benefit from tax relief at 20%, which equates to £720 from the government. This means that you would only need to contribute £2,880 personally.”
Nevertheless, some organisations are calling for auto-enrolment to apply to more employees. This broadening of auto-enrolment, along with the continued expansion of flexible working options and the removal of barriers that prevent women from entering and remaining in work after having children, could do much to improve projected retirement incomes.
Employers now have a legal duty to consider requests for flexible working by employees. For women returning to work from maternity leave, the leeway they are given can make a huge difference to their employment prospects – and to how much they can afford to save into a pension.
“With a greater number of women staying in the workforce for longer these days, and employers increasingly offering more flexible working patterns, the outlook looks more positive for women’s retirement incomes in the future,” says Prudential’s Anderson.
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1 Research Plus conducted an independent online survey for Prudential between 8 and 22 November 2016, among 10,605 non-retired UK adults aged 45+, including 1,000 planning to retire in 2017