A new report shows the extent of the ‘women’s pension deficit’. The report by the Chartered Insurance Institute shows that men have five times more in their pensions than women, at 65. The report says that the average 65-year-old woman has £35,800 in her pension, compared to £179,000 for the average 65-year-old man.
The women’s pension deficit
The report has been written by the Chartered Insurance Institute as part of an initiative called ‘Insuring Women’s Futures’. This initiative isn’t about selling women insurance, but is looking at how women lose out financially when they’re working, looking after children or family or when they’re retired. More importantly, it’s looking at what industry and policymakers should do about it.
FULL DISCLOSURE: I am involved in Insuring Women’s Futures. I sit on two working groups. I’m not paid for that work and I’m not paid to publicise what they do. I just believe it’s a great idea.
Why do women have smaller pensions?
The report says that the main reason why women have smaller pensions is because of the way society views women and women’s roles in the workplace etc. Longstanding laws and policies also penalise women.
- The gender pay gap/women’s earning potential: Men earn 80% more than women over their lifetime.
- Lower pension contributions: A woman pays £80 a month into a pension ‘pot’ type of pension, on average. It’s £149 a month for a man.
- Lower employer pension contributions: Men aged under 35 receive £217 a year more by way of employer contributions towards their pension than women do.
- Caring responsibilities: One in seven women in their 40s are caring for a child and a parent. A third of women in their 50s are caring for an elderly relative.
- Divorce: A divorced man has £30,000 in his pension, on average, compared to £12,000 for a divorced woman.
- Part time work: Over three quarters of employees who can’t be automatically enrolled into a workplace pension because they earn less than £10,000 (from each job) are women. Women make up 81% of those who work part time. Women who work part time are paid 30% less an hour on average, than women who work full time.
- The state pension: More men get paid the full state pension. The report shows that men get £29,000 more from their state pension than women over their retirement.
- The state pension age rise: The state pension age for women has risen from 60 to 65 (it will be 65 in November) and then rises to 66 by October 2020. As SavvyWoman users will know, it’s had an incredibly detrimental effect on millions of women’s finances.
- Low paid women miss out on tax relief on workplace pensions: Most workplace pension schemes take your pension contributions from your salary before they take tax. Under the pension rules, even people who don’t pay tax can get tax relief at 20% on up to £2,880 of pension contributions a year. But they miss out on this if their employer uses this so-called ‘net pay arrangement’. You can read more about this in my article called tax relief on workplace pensions.
What needs to change
The report says that policymakers, regulators, the financial industry, employers and individuals need to get involved so that things change for the better.
The Insuring Women’s Futures initiative wants:
- Employers to get more involved in their workers’ financial wellbeing. It also says that employers should make sure that their pensions are inclusive, including, for example, making sure that information is relevant to women and men.
- More employers (and policymakers) to think of flexible working as the norm and not the exception.
- Young women to be made more aware of the financial pitfalls they may face.
- Improvements in the way that financial advisers and financial companies engage with women.
For years, the pensions industry has seemed to take great delight in highlighting the fact that women have smaller pensions than men, but not to recognise why this is. Yes, we do have a responsibility to save for our own retirement. But I’ve become increasingly fed up by the ‘women save less’ headlines, without any context of why this is.
If you earn less than men, get less paid into your pension than a man, lose out on tax relief if you’re a low earner and/or take time out to look after your children or elderly parents, you won’t be able to set aside as much as a man. On top of that, policy changes, such as the rise in state pension age, have had a devastating effect on many women who were generally not ‘equal to men in the workplace’ when it came to pay, pensions and promotion.
I’m delighted that the tone is changing and that initiatives like this are looking at what the industry and others need to do, and not just telling women to save more.
Action point: Check when you’ll get your state pension and work out how much money you’d like to live on when you retire. Then look at your most recent pension statements to work out what you’re due to retire on. If there’s a gap, don’t despair, but see if you can pay extra into your pension or start one if you don’t have a pension.
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