Turning the tide
The ebb and flow of many women’s careers makes the challenge of retirement saving even greater.
In the last half-century, there have been significant improvements for working women. But according to the World Economic Forum, gender inequality remains stubbornly persistent.
In the UK, women are adrift on a number of key measures. The UK was the ninth most gender-equal country in 2006, but by last year had slipped to 20th place.1
Equal pay is often seen as a key marker of social progress. In Europe, one of the world’s most equal continents, income inequality is still a major problem. The average gender pay gap within the European Union is around 16%, which means that, for every €1 a man in the EU earns, a woman will earn 84 cents.2 Women in the UK are still earning 18% less on average than men, across full- and part-time work.3
Likewise, the proportion of women saving adequately for retirement remains well below that of their male counterparts. Yet the pension gap has generally received less attention than the pay gap, even though it has equally serious consequences.
Research by Aegon shows that women have barely a third the pension savings of men; their average pension pot holds just £24,900 – far below the £73,600 average for men.4 Furthermore, next year will see an increase in women’s State Pension age. The changes are being brought in earlier than originally planned, leaving many women born in the 1950s facing an extra five-year wait to receive their State Pension. As a result, hundreds of thousands of women have had to re-plan their retirements.
Time and tide
Life events and phases such as maternity leave, bringing up children, or caring for an elderly parent can contribute to women having shorter or more disrupted careers. This gives them less opportunity to earn and to convert some of those earnings into pension savings. But women also tend to live longer than men, so it is arguably even more important that they actively engage with saving for retirement.
Yet more than two fifths have never reviewed or taken any action to improve their plans for retirement, and just a fifth have engaged in the last six months. This is well below the level for men, a quarter of whom have checked or amended their pension plan in the last six months. It goes at least some way to explaining why more than a third of women don’t know how much they have saved in their pension.4
However, the research also points to some positive trends. In April 2015, women had an average of just £16,700 saved in pensions, but this increased to £20,400 in 2016 and has since risen to £24,900 – up 49% in just two years.4
Aegon claims that pension freedoms, which allow people over 55 to use their defined contribution pension in a variety of ways, have directly led to 13% of women saving more into their pension since their introduction in 2015. But it may also be that women are becoming increasingly aware of the need to provide for later life.
“It can’t go unnoticed that women have made some encouraging steps forward in saving for retirement,” says Kate Smith, Head of Pensions at Aegon. “However, the difference between men’s and women’s pension savings is stark and there are a number of reasons behind the widening pension savings gender gap. Auto-enrolment has successfully introduced 7.6 million people to workplace pensions but the gender pay gap means that men are effectively saving more without even thinking about it."5
Ian Price, divisional director at St. James’s Place, believes that planning ahead is key, not least because it can enable you to identify key periods during which you might be able to increase your contributions.
“Reviewing your existing pension provision and getting a State Pension forecast, including checking your State Pension age, is the first step to understanding how much you might need to put away,” he says.
“If it’s appropriate, increasing pension contributions for a set period of time, perhaps once children have reached school age and when childcare is no longer an expense, could go a long way to making up for any gaps in your pension saving history.”
“Speaking to a qualified financial adviser can help you to work out what your short- and long-term financial goals are and how to put the necessary pension plans in place. Through early action and with the right preparation, that hoped-for retirement can be achieved.”
The value of a pension with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.
1 World Economic Forum, The Global Gender Gap Report 2016
2 http://ec.europa.eu, accessed 9 May 2017
3 Office for National Statistics, 26 October 2016
4 Aegon UK Readiness Report, Edition 6, April 2017
5 The Pensions Regulator, 11 April 2017