How to empower women to take control of their pensions

Women’s pension pots are, on average, 40 per cent smaller than men’s by the time they reach, but a few simple steps can help close the gender pension gap, says Camilla Esmund

It was Pensions Awareness Week this week, which has hopefully encouraged savers to have a look at their pension pots and consider whether they’re on track for the retirement they hope for. It is also a timely reminder of the stark gender pensions gap – which remains a pressing financial issue of our time. Despite strides forward in workplace equality, women in the UK are still retiring with significantly less financial security than men.

Why the disparity? Well – how much time do you have? The gap has been well-researched, and it comes down to a combination of reasons. Naturally, the persistent gender pay gap plays a key role. This is then thrown in the mix with many other factors such as taking career breaks for children or caregiving, and longer life expectancies. Once again, the impact of the ‘motherhood penalty’ shows itself. Unfortunately, it seems if women have children, the odds are stacked against them. After all, the UK has some of the highest childcare costs in Europe, and this can mean women are making sacrifices that impact their ability to build long-term wealth.

As policymakers grapple with solutions (Labour has announced a ‘review into the pensions landscape more broadly) the growing gender pensions gap threatens to leave millions of women facing an uncertain financial future.

So, let’s talk about it.

The size of the problem

Government data on the gender pension gap revealed that there is a staggering 48 per cent pension gap between men and women by the time they reach age 45, with men having £88,000 in their pension on average, compared to £46,000 for women. Let that sink in for a second.

On top of this, the gap is set to expand over the next few years as investment compounding and lower women’s average pay both impact on future retirement wealth.

Of course, pension saving – understandably – cannot and will not always take priority over more immediate costs. But we can help empower more women to take control of their financial futures by showing the amazing impact of seemingly small contributions over time, especially as we can hope that at some point along one’s pension saving journey, they may be able to increase contributions. To give an example, contributing an extra £200 per month from the age of 50 could add up to £73,704 by the time you reach 67, assuming five per cent investment growth after charges, and payments increase annually by two per cent. And that £200 per month will only cost basic-rate taxpayers £160 as pension contributions are tax free.

Complexity disenfranchises investors

The thing is, the pensions landscape is complicated – and for self-directed investors, male and female alike, it is not straightforward. Unfortunately, even 11-years on from the introduction of auto-enrolment which means more people are saving into a workplace pension than ever before (yay), we still see a consistent engagement problem when it comes to pensions. Frustratingly, there is still a clear lack of financial capability in the UK – and this would be beneficial to all investors. There is a desperate need to give people the financial tools and literacy to build financial resilience and make the most of their often-limited financial resources.

The good news is, we know that women are fantastic investors

The pensions gap, and wider investment gap, is deeply concerning. But it’s encouraging to see that when women do invest, they do well. We have done plenty of investment myth-busting at ii when it comes to how women invest compared to men – and our data shows that they run their money along very similar lines to men. In fact, our quarterly ii Index data shows that women have had a tendency to outperform men over longer timeframes. Women outperformed over the last four and a half years that we have been publishing this index (to 30 June 2024), returning 21.6 per cent versus 21.2 per cent for men, and over three years (10.4 per cent versus 9.6 per cent).

How women can take control of their financial futures

As solutions to the gender pensions gap aren’t expected anytime soon, it’s vital for women to take matters in their own hands.

A great first step is to get a state pension forecast. If there are any gaps in your national insurance (NI) record – you need 35 qualifying years to receive the full amount – the sooner you can plug them, the better. This is particularly important if you’ve taken time out of the workforce to care for young children and/or elderly parents; two tasks that disproportionately fall at the feet of women.

While the state pension can provide a valuable source of income in later life, it alone is unlikely to be enough to achieve a comfortable lifestyle.

Retirement planning is, of course, a personal affair; one’s comfort is another’s luxury. The key is to think about how you would like to spend your time in old age and work out how much you’ll need every year to live the life you want.

If you’ve spent years out of the workplace, you might feel your current savings are a bit light. To make up for lost time, consider topping up your savings, which you can do by putting more each month into your workplace scheme or setting up a separate personal pension.

The former should typically be your first port of call, as your employer may match some or all the extra to choose to contribute. And if they operate a salary sacrifice scheme, your payments will escape NI as well as income tax, putting some extra money in your pocket.

If you’ve maxed out your workplace benefits, or are self-employed, a great way to put yourself in the driver’s seat is to open a Self-Invested Personal Pension (SIPP). Unlike many other pensions, you have the flexibility to select how and where your money is invested. Bear in mind, you must be happy to make your own investment decisions. 

Finally, a task that can put you further down the track without any extra funding is to round-up any lost or misplaced pensions, which you can do by either using the government’s online tracing service or contacting your previous employer(s). To avoid pensions going astray in the future, consider merging several into a single plan, which you can do within a SIPP. This can make things easier to manage and reduce your fees – just make sure you don’t lose any valuable guarantees in the process.

Camilla Esmund is senior manager at ii