“The pensions gender gap is a huge concern and shouldn’t be ignored. Many women are failing to plan adequately for their retirement years, which is extremely worrying as they tend to live longer than males (on average by 2.4 years when retiring at age 65), so if anything they need to build up a larger pension pot to cover their later life financial needs. This issue is deep rooted and goes beyond the fact that women simply aren’t saving as much as men. The reasons for the pension savings gender gap mirror those of the gender pay gap. Lifetime earnings are less, so pension savings are lower.
“A woman’s ability to save for retirement is often interrupted by unavoidable career breaks, such as to raise a family or care for elderly parents, making it difficult to catch up. Women on average have far less in their private and workplace pensions than men, leading to a significant gender pensions gap. Research carried out by Aegon shows that women are more likely than men to have no pension arrangements in place. In fact, 15% of women compared to 11% of men are failing to pay into a pension plan of any kind.
“By the time women reach age 50, they have on average only half the private pension savings (£56k) of their male counterparts (£112k). At age 30, the average female pension fund is £21,029, compared to the average male pension pot at £27,688. Even early on in their career, at age 30, women need to contribute an extra £21 a month to close the gap on men, by age 50, this has risen to an extra £360 a month, showing it pays to address any shortfall in savings as quickly as possible. Whilst the expectation is that auto-enrolment should help to close the gender pensions gap, the reality is that a woman’s ability to save into private pensions is severely limited if they are not earning, but under UK tax rules, they can pay in up to £3,600 (including 20% tax relief) in such circumstances.
“Women are more likely than men to be working on a part time basis and more focus needs to be given to making pensions more accessible and attractive to part time workers in order to address the gender pensions gap. For part-time employees, retirement may seem a daunting prospect and for women this may be heightened as they already find themselves lagging behind men in terms of their retirement savings. While part time workers may find it challenging to make significant pension contributions, the availability of tax relief and in many cases an employer contribution can mean even a little can be turned into something very worthwhile over the longer term.
Women are disproportionately excluded from auto-enrolment
“Additionally, women can be disproportionately excluded from automatic enrolment if they earn below the £10,000 earnings threshold. Some individuals may have several part time jobs and while their overall earnings may be above £10,000, if no single job pays more than £10,000, they are excluded entirely from automatic enrolment. Government data in 2016 showed that 31% of eligible female workers earned less than £10,000 a year. Women are more likely than men to have multiple jobs, where they earn less than £10,000 a year in each job, so missing out on auto enrolment within each.
“Under current rules, individuals are not automatically enrolled into a workplace pension unless their earnings in a particular job exceed £10,000. This means many part time workers are excluded and could end up with no private pension, leaving them reliant on the state pension in later life. However, individuals have a right to ask to join their employer’s workplace pension. And if their earnings are above the ‘lower earnings threshold’, which for the 2018/19 tax year is £6,032 per year, (it goes up to £6,136 for the 2019/20 tax year) if they join, their employer is required to contribute. If earnings are below this threshold, it’s still worth asking if your employer will contribute voluntarily if you join.
Equalisation of State Pension Age
“The equalisation of state pension age, and future planned increases are a further prompt to women to think about how much they’ll need to save privately for a comfortable retirement, seeking to address the very real hurdles they face. It can be well worth seeking financial advice. The earlier women work out how much they will need to set aside for retirement and begin to address the shortfall, the better.”
Pension pitfalls of pregnancy
Kate Smith, Head of Pensions Aegon, said: “The physical and emotional impacts of motherhood are well documented and understood. However, the full financial impact of motherhood is harder to understand.
“A key question women should ask their employer’s is what happens to their pension when on maternity leave.
“The good news is that during any period of paid maternity leave women can continue to build up a pension, so it’s important that they continue to remain a member of their workplace pension scheme.
“Their employer will continue to pay pension contributions as long as they remain in the scheme, based on the salary received before maternity leave started. But they only need to pay pension contributions based on their actual earnings during maternity leave, so this includes any Statutory Maternity Pay and any top-up pay from their employer. If an employer matches employee contributions, they must continue to match the contributions paid before maternity leave started. However, they won’t receive any employer contributions during any periods of unpaid leave.”
Returning to work – top up your pension when you can
“Gaps in pension savings history can leave women worse off in retirement. So if they can afford it, when they return to work, they may wish to think about paying extra contributions to make up periods of unpaid leave – to fill the gap.
“If they are in a defined contributions pension, their retirement income will be dependent on their contributions and how much their employer pays in. So it’s important that they try to avoid having too many gaps in their pension contribution history, something they may regret later on in life.
“Mums should keep in mind that if they decide to take a full year off work – and stop making contributions to their workplace pension – they might find themselves needing to work longer to make-up the shortfall. That is assuming they remain fit and healthy enough to do so.”
Tips to manage your retirement savings to and through maternity leave
• Find out whether your employer provides maternity pay higher than the SMP.
• Consider increasing your pension contributions before you go on maternity leave, particularly if your employer matches your contributions. Your employer has to continue matching your contributions during paid maternity leave.
• Avoid leaving the pension scheme as your employer will continue to make pension contributions based on your pre-maternity leave salary.
• You only need to make contributions based on your actual earnings during maternity leave, making them more affordable.
• When you return to work consider paying additional contributions to cover periods of unpaid leave and when your contributions were lower.
• Review your pension payments when you return to work, if you have another child, when your children reach school age and if you no longer need to pay nursery or school fees.
• Simply being in the workplace pension scheme doesn’t guarantee you enough money in your pension pot to get you a comfortable retirement. You need to make financial plans for the future so you can spend quality time with the family you have worked so hard to raise.
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