It’s well known that a financial disparity persists between working men and women in the UK. At present, the ‘pay gap’ between the genders currently sits at 13.9%. However, it’s not just that women are generally paid less in the workplace than their male colleagues; they also have to struggle harder to ascend the career ladder than male counterparts. Women often have to leave work in order to bear and raise their children and are more likely than men to have to take time out of work to care for elderly relatives. According to recent studies, women are also worse off when it comes to their pension entitlement.
Changes in state pension age
In recent years, significant changes have been made to the age when a state pension becomes payable. This applies particularly to women and it is likely more changes are on the way. The reason is that the government desperately needs to save money, due to the longer life expectancy of the population. Plans were announced back in 1995 to eventually make the retirement age the same for women as it is for men. These plans were accelerated in the Pensions Act 2011.
For years, women could retire at 60, whereas men had to wait until they were 65. It was announced that the state pension age for women would increase gradually to 65 between 2010 and 2020. It is now intended that the retirement age for women should reach 65 in 2018. By 2020, the retirement age for both men and women should be 66, and it is intended that it will eventually be 68 for everyone.
The speed with which these changes have been made had a major impact on women born in the 1950s, who are currently approaching retirement age, only to find their retirement dates being continually pushed back. The pressure group WASPI (Women Against State Pension Inequality) claim they were given insufficient notification of the changes. As a result, they have been unable to properly plan for their retirement. However, pensions minister Richard Harrington has categorically stated there is “no hope” of the government changing its mind on this issue.
The savings gap
As the maximum state pension is currently only just over £8,000 a year for men and women, it falls on all of us to make our own provision for retirement in the form of private pension plans. The introduction of automatic enrolment in workplace pension schemes has led to many more employees having private pensions than before. However, there is still a significant pension gap between men and women.
A recent report by the insurance firm Aegon revealed that, on average, men have three times the amount of pension savings as women: £73,600 compared to just £24,900. This is at least an improvement on two years ago, when women had an average of £16,700 in their pension pot. Again, this improvement is largely due to the introduction of auto-enrolment, which has led to Britons saving more for retirement in general. The average Brit now has £49,988 saved, compared to £28,766 in 2015.
Less opportunity to save
One basic reason for the disparity is that if women are paid less than men then, they aren’t able to save as much. In this respect, auto-enrolment favours men more than women, as if both put aside the same percentage of their wages, male workers are able to save more.
Women are also more likely to take time off from their careers to have children and to work part-time while bringing them up. These career breaks can even affect a woman’s eligibility for the full state pension, which requires 35 years’ worth of National Insurance contributions. Many women will reach retirement age to find that breaks in full-time work have left them with insufficient contributions to qualify.
Retirement planning for women
This is why retirement planning for women is so important. However, studies show that women are far less likely than men to take an active interest in their savings. There are signs that this is improving: for instance, the average amount specifically set aside for retirement in an ISA by women is now £14,900, compared to £5,400 in 2015.
Both men and women need to do more to prepare financially for retirement, earlier in life. However, because as women are statistically more likely to end up with a smaller state pension, it is all the more important they take matters into their own hands.
What you can do?
The first thing is to find out how much you currently have set aside for retirement. This means looking at the amount in workplace pension schemes and other private pension plans, as well as National Insurance contributions made towards the state pension. Make sure you know at what age you will be allowed to retire with a pension, but consider whether you may have to work beyond this age in order to have a pension that meets your needs.
The government is planning to introduce an online ‘pension dashboard’ to make it easier to find all of this information. In the meantime, you can request your NI record and can make voluntary contributions to fill in any gaps, or top up the amount, in order to meet the required levels to secure the full state pension. You should also establish whether your workplace pension is likely to meet your expectations. If this is not the case, you may want to consider investing in another private pension plan.
If you are concerned about your pension, expert impartial advice can help. It’s vitally important that women take control of their own finances and retirement planning, whether they are married or single, young or old. It’s never too late, but at the same time, it’s never too early. Take control of your pension today.