IWD 2023: How to tackle the gender pension gap

  •  By
  •  Lee Mannion

As well as celebrating the achievements of women, International Women's Day (IWD) is an annual reminder to consider gender parity. Which got us wondering: is it fair that women are so much poorer than men when they reach retirement?

Pension saving in the current economic climate feels hard, regardless of gender or circumstances. But there's no doubt women face a unique set of challenges that have contributed to the Gender Pension Gap widening in recent years.

The difference between the pension savings funds of men and women has various estimates, but a 2022 House of Commons research briefing quoted the trade union Prospect, which estimates that the gender pension gap in the UK was 37.9%. How has this happened?

Why are women more likely to be poorer in retirement?

Career gaps

When it comes to building up a decent pension pot for later life, women currently have the odds stacked against them. Women are more likely to have gaps in their employment history when they have kids, which slows any path up the career ladder that increases their salary.

They’re also more likely to be the primary carers of those children, which is challenging and rewarding work – just not the kind that pays and comes with a company pension scheme.

To fit around that childcare, women are more likely to seek part-time work or in lower-paid sectors. Fewer working hours and smaller incomes equal less available funds to contribute to a future nest egg.

Career gaps can also happen later in life as women are more likely than men to give up work to look after ageing relatives. As women live longer than men on average, the amount of retirement years they have to pay for is also likely to be longer.

The gender pay gap

The gender pay gap, which refers to the difference in average pay between men and women, doesn’t help either. According to the Office for National Statistics, the gender pay gap in the UK is currently 15.5%. This means that, on average, women earn 85p for every £1 earned by men, meaning it’s more likely that proportionally less money will be invested by women into their pension funds.

Women’s earnings drop significantly when they have children. Research from the Institute for Fiscal Studies found that the gap widens consistently for 12 years after the first child is born, by which point women receive 33% less pay per hour than men (see chart below).

Line chart showing the gender pay gap after birth of first child

Financial literacy

Several studies suggest women are less financially literate. According to the UK government’s Money and Pensions Service this is true by several metrics - awareness, confidence, feelings, experience and trust. Just 36% of women think they understand enough about pensions to make decisions about retirement, compared to 54% of men.

Closing the Gender Pension Gap

There’s no doubt that ingrained gender roles and unequal opportunities make it harder for women to build a pension pot that’ll give them the future they want. Businesses need to ensure women are getting paid the same as men and strive for equity for their female staff. Men also need to consider the advantages they have and adjust investments for shared futures with partners.

But women can take some things into their own hands to tackle the injustice of the gender pension gap too. Here’s how.

The magic of compound returns

This is a jargon-y way of saying you earn interest on your interest. To have a pension is to play the long game, so the sooner you start paying into one, the better.

Keep on paying in, even if it's small

Try and maintain some degree of contributions even during career breaks. The compound returns mean any small increase in the fund will reap dividends. But what you’re also doing is creating a saving habit, making it a lot easier to up your contributions when you start earning again.

Get a clearer picture of what your pension's worth

It’s rare to have one job for the whole of your life and changing them likely means you’ll be enrolled in several different pension schemes. With different amounts of money in different pots, it’s difficult to see how much you’re saving towards your future. Combining them puts everything in one place, providing a clearer picture.

The Penfold app makes hunting them down and bringing them all together easy to do in a few taps. You can even add various pensions alongside the state pension with the Your Forecast tool to see your income in retirement. Knowledge is power, so we can also help you with tax hacks like Salary Sacrifice to deliver more funds into your pension pot.

Choose a flexible pension that adjusts to your lifestyle

Contacting some pension companies when you want to discuss changes or alter payments can be a pain. Choose a provider that offers lots of flexibility when it comes to adjusting and pausing contributions and it’ll make your life easier. Penfold is designed to be tailored to your finances. If you decide to make contributions, you can adjust, top-up, or pause payments any time online or in our app.

It's good to talk

Conversations about finances can be uncomfortable but some short term pain might produce some long term shared gain. If you have conversations with your partner about the gender pay gap and gender pension gap, you can ensure responsibilities are weighted fairly for saving for the future. And if you're single, make sure you have a clear financial plan and are taking steps to prepare.

You can check out Penfold's Pension Guides today to get started. Here are a couple of guides we'd recommend for beginners:

The better we understand the pros of a pension and how they work for us, the better the chances we have of securing our financial futures.

With investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice and past performance is not a reliable indicator of future performance.

Lee Mannion

Lee Mannion

Penfold

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