The gender pay gap: How it goes beyond salaries and affects retirement

July 2021

While the gender pay gap has received lots of attention over recent years, the impact it has on pensions is often overlooked. Figures suggest that women are reaching retirement age with far less in their pensions than their male counterparts and it could have a serious impact on the retirement lifestyle they can enjoy.

It’s been 50 years since the Equal Pay Act was introduced. The law set out how men and women must receive equal pay for doing equal work. As well as salary, the law also covers things like pension, annual leave allowance, sick pay and performance-related pay, such as bonuses. Despite strides being made in the last five decades, some businesses have faced criticism over pay gaps recently. 

While salary and bonuses have often been the focus of these criticisms, the pay gap can lead to a huge pension gap. According to a study by Prospect, the gender pay gap is around 17%, but the gender pensions gap is more than 40%. In retirement, that translates to an income difference of around £7,500 each year.  

There are many reasons for the pension gap, including women being more likely to take time away from work to raise children and the long-term impact this has on income. Earning less over their working lives than men also has a cumulative impact on women’s pension savings. 

Worryingly, the pension pay gap has barely changed in the last five years. While positive steps have been taken to close the gender pay gap, women could still face significant challenges in retirement. In fact, previous research from Scottish Widows suggested women would need to work an estimated 37 extra years to achieve the same amount of pension as men.

Taking a proactive approach to pension and retirement planning while still working can help women close the gap and be in control of their future. Here are five things you can do to be more secure in retirement. 

1. Understand what you’ll receive from the State Pension 

While the State Pension isn’t usually enough to live on alone, it does provide an important foundation to build on. In the past, women’s State Pensions have been complex and may have been linked to their husbands’ entitlement. For some nearing retirement now, this may still be the case.  

In most cases, you’ll need 35 years’ worth of National Insurance Contributions to receive the full State Pension. If you have missing years, for example, if you took a career break, you may be able to pay voluntary contributions to bridge the gap. Understanding your State Pension is an important part of planning your retirement. You can receive a State Pension forecast here or get in touch with us if you have any questions.  

2. Be proactive and engage with your pension 

When retirement is still several years away, you may put off engaging with your pension. Being proactive while you’re still working is essential if you’re to reach retirement goals. 

Review your pension and how much you’re paying into it. Will the steps you’re currently taking give you the retirement you want? In some cases, even a small increase in contributions can have a large impact. 

If you’re not eligible to be automatically enrolled into a workplace pension, it’s worth asking your employer if you can still join. Your employer may still contribute on your behalf. Alternatively, you can open and pay into a personal pension, which will still benefit from tax relief to deliver an instant pension boost.  

3. Check if your employer will match your contributions 

If you’re automatically enrolled into a pension, your employer must contribute a minimum of 3% of your pensionable earnings on your behalf. However, some companies will contribute more or match your own contributions up to a certain percentage. If your employer offers this, it’s well worth maximising your contributions if you can, as you’ll effectively receive more “free money” to put towards your retirement.  

4. Consider how life events will affect your pension 

Over your working life, some things are likely to affect your pension. Having children and taking time away from work to raise them can have a huge impact on the amount you save for retirement. Understanding this can help you make decisions that mean your retirement stays on track. You may, for example, decide to continue making pension contributions while taking a career break, increase contributions when you return to work, or adjust your retirement plans.

Divorce is another area that can affect a woman’s security in retirement. While pensions are often among the largest assets held, they may be overlooked when going through a divorce. According to International Adviser, just 3% of divorcing couples seek financial advice that could help them understand the long-term financial impact of splitting up and how to build security.  

5. Keep in mind how long your pension needs to last for 

One of the challenges facing women is that while they have smaller pensions, they often need to last longer. Life expectancy for women is higher than men's, so your pension is likely to need to stretch further. Failing to consider life expectancy when reviewing your pension could mean your lifestyle ends up falling short of expectations or that you face unexpected financial insecurity later in life.  

Get in touch

If you’re not sure if your pension is on track for the retirement you want, please contact us below. We’ll help you understand how the steps you take now can provide the financial security you need later in life.  

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.  

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. 

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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