women planning retirement

Savvy Women Are Planning Their Retirement Early

Posted on Posted in Pensions

Gender discrimination in the workplace was outlawed a generation ago. Firms could no longer run ‘man wanted’ advertisements when they needed to boost the workforce. A woman could no longer be paid less than a man for the same job.

But what about when it comes to pensions? Is there still a gender gap? And if women are still at a financial disadvantage, what can they do about it?

The pension gap

The battle for equal pay may have been fought and very nearly won, but the struggle for pensions continues.

Leading gender equality charity, The Fawcett Society, found only 52 per cent of British women are saving for their pensions, compared with 60 per cent of men, and that the percentage falls even further with age. Women taking part in the research believed they should be financially independent, but many had cut their own pension contributions as a result of taking time out of work to look after children. They were relying on their partner for secure retirement.

As well as childcare costs, student debt and the costs of a family can also be burdens that prevent women trying to save for retirement. The typical picture is that the male partner is the main breadwinner and the main pensions saver. Women who return to work after a career break may still face additional costs for childcare, and leave their pensions on hold.

So what is the picture for pensions? Sadly it seems, not quite so positive. In fact, the gender pension gap could be as high as 40%.

A worse deal for women

The 40% figure comes from a number of factors, not least the fact that many women take career – and consequently pensions contributions – breaks to raise a family. Their pension pots are smaller because they have had less time to fill them up.

This is made worse by the fact that many women going back to work do so further down the career ladder than they otherwise would be, and a high proportion simply do not restart their pensions, relying instead on their partner’s pension saving.

Auto Enrolment (AE), which sees all workers joining a company pension scheme may go part of the way to address this by making starting a pension automatic on rejoining the workplace, but AE payments will not be enough to ensure sufficient income in later life.

Major changes to state pensions will also do little to improve the retirement prospects of women, and many will see this as one area where greater equality means a worse deal for women. State pension ages have risen sharply for some women, who now claim they have been left either having to work longer or struggling to make ends meet as they wait several extra years to collect their state pension. Campaigners have claimed the government did not publicise successive changes well enough.

The 1995 Pensions Act first set out women’s State Pension Age (SPA) rises from 60 to 65 to equalise with men’s. The Pensions Act 2007 raised the pension age for women and men from 65 to 68 between 2024 and 2046. The 2011 Pensions Act accelerated this timetable. Women’s SPA would hitting 65 by 2018 and both men and women would have an SPA of 66 by 2020. It meant some women would have to wait an extra two years to receive their state pension, later capped at 18 months.

The way that the Single Tier State Pension works may also mean a worse deal for women. Under the new rules, everyone will need 35 years’ worth of National Insurance contributions to get the maximum pension. Many women simply do not have this amount of National Insurance credits, because of their career breaks.

Waspi” (Women Against State Pension Inequality) campaigners who have mobilised women who stand to lose from the 2011 Pensions Act as it is currently to be implemented. They may be able to get concessions from the government which may improve state provision for women in retirement, but the position is far from clear. One result of their efforts is that government’s Work and Pensions committee will recommend women hit by accelerated rises in the state pension age should be allowed to take their pension early.

Proper planning can help

It’s clear that while woman may slowly be winning the battle for equal pay in the workplace, they are still at a serious disadvantage when it comes to pensions.

The best advice is actually very simple. Women need to make their pensions plans as early as possible if they are to enjoy the kind of retirement they want. By setting up a Private Pension plan, they can build up the kind of pension pot which will allow them financial freedom, whatever the government plans are, and however deep and wide the pay gap may be. Solutions exist, and proper pension planning can help to overcome pensions inequality.

For expert advice on the range of solutions available, please contact our pensions advice team.

The Financial Conduct Authority does not regulate wills, taxation and trust advice.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.