Why do women retire on less than men?

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Women retire on less than man – and sadly, have done so for years. The good news is that the gap between the amount women and men retire on is narrowing. However, the pace of change is quite slow.

Why do women retire on less than men?

Figures out this week show that women retiring this year will receive £5,000 less a year than men. That works out at 29% less than men retire on, on average. The research, from Prudential, shows that women expect to retire on £16,900 while men expect to retire on £21,800. This ‘gender pensions gap’ has shrunk over the years. However, women will retire on significantly less. This article will look at some of the reasons.

Women get a lower state pension

One reason why women retire on less is that they have a lower state pension than men. The state pension is based on the number of years you’ve paid National Insurance for or that you’ve been credited with.

Before 2010, men had to pay or be credited with 44 years of National Insurance to get the full state pension and women 39 years. At the time, only 45% of women qualified for a full basic state pension, compared to well over 90% of men.

In April 2010, the rules changed and both women and men had to pay 30 years’ National Insurance to get a full basic state pension. As a result, the number of women getting the full amount increased sharply (to over 75% within a year or two).

The state pension system changed again in 2016, and currently only 21% of women get the full state pension. It isn’t until 2022 that DWP figures show that an equal percentage of women and men will get the full state pension.

You can read more about women not getting the full state pension in my article. I’ve also written a history of the state pension and how it affects women, which gives some useful context.

The gender pay gap

The gender pay gap has been in the news a lot recently, but a woman retiring now is likely to have started work in the 1970s. Although the Equal Pay Act was in force, it certainly didn’t guarantee that women were being paid equal to men if they were doing the same or a similar job. And many more women end up in poorly paid jobs (or jobs that women are more likely to do are poorly paid, depending on your view).

As I write this, the gender pay gap is around 18%. This means women earn 18% less than men on average. However, as the gender pay gap figures have shown, some companies have a lot of women in poorly paid roles and seem to reserve the most senior roles for men. You can find out about which financial companies have the biggest gender pay gap in my article

Time out of the workplace

Not all women have children and not all of those who have children take time out of the workplace. However women who do take a career break, especially those who want to work flexibly or part time after they return to work, are likely to find they earn a lot less. Some employers have a good flexible work policy, but many don’t.

If you earn less, you have less money in your pay packet to put into your pension but, crucially, you will get a lower pension contribution from your employer.

The insurer Zurich did some research in 2017 (it looked at 250,000 workplace pension plans, so the research was robust). It found that women miss out on £47,000 of pension contributions from their employer, on average. This was down to several factors: the gender pay gap, career breaks, and men working for larger companies (that offered better pensions).

Self employed women

Most people who are self employed are men, but there has been an increase in the number of women working for themselves. However, women who are self employed tend to earn less than men who work for themselves and less than women who are employed. If you have less money coming in, there’s less to invest.

Investment choices

There’s been lots of research over the years that seems to show that women are more cautious than men when it comes to investing. I think it’s partly because the industry has done such a bad job of explaining what investing involves, but that’s another article!

Research by pensions consultants Mercer shows that women have a pension pot that’s 40% smaller than men’s. Mercer said that the gender pay gap and career breaks feed contribute to this gap. However, they also said that women tend to invest more cautiously than men. Mercer found that women are 62% more likely to invest in a defensive fund (that’s a fund that is designed to minimise the risk of losing your money).

Women live longer

Even if women earn the same as men, pay the same into their pensions and invest the same, we’d end up with a lower annual pension payout. And that’s because we tend to live longer than men. Although the gap between life expectancy of men and women is narrowing, on average, there is still a difference.

What you can do

In my view, the gender pay gap and the way we work need to be addressed before women will be on an equal footing to men when it comes to the amount we can save. There’s more that can and should be done, which I’ll explore in future articles, but in the meantime, I would encourage you to set aside money for your retirement – either through a workplace pension or a personal pension.

Useful links:

Prudential research on the gender pensions gap is on their website.

Related articles: 

How to avoid retiring on £23 a day

Pension contributions increase for automatic enrolment pensions

Tax relief on pension contributions – what is it and how does it work?

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