33%. That’s the current difference between the average private pension savings of a man and woman if you look at the minimum pension age of 55 which will rise to 57 in 2028.
That’s a frightening statistic, and part of the problem is a lack of financial knowledge and confidence in women. This impacts the way that they approach saving for their pension and the longstanding gender pay gap also makes it more difficult for women to budget appropriately for their retirement. Improving the financial literacy of women in particular is a vital step that needs to be taken to help close the gender pension gap.
The gender pension gap
The gender pension gap is the difference in the average amount held in a personal pension between men and women. It’s been a longstanding issue, and the great thing is that we are seeing more and more people talking about it, this is raising awareness and will be beneficial in terms of making progress towards closing it.
There are a number of reasons why the gap exists. Perhaps the biggest driver is the gender pay gap, which is the difference in average pay between men and women. The gender pay gap is currently estimated at around 14.9% and the amount a person earns is likely to have a direct impact on the amount that they save into a pension each month. According to a Parliamentary report published earlier this year, women are more likely to be among the lower earners, and they make up the vast majority of part-time workers too (38% of the female workforce over the age of 16 work part time).
Put in simple terms, men tend to earn more than women and therefore they save more into their pension during their working life.
Another key driver of the pension gap is career breaks. Women are more likely to take a career break for caring or childcare reasons, meaning that they might want or need to take a break from pension contributions during this time. This equates to less money being contributed to their personal and workplace pensions. The cost of childcare can be prohibitive to some women returning to the workforce. The estimated average cost of one child in full-time nursery throughout a year is £14,000, so women need to be earning considerably more than this in order to make their return to work financially viable.
~Novel Serialisation: Heavens Fire~
Women also tend to live on average 3.5 years longer than men, which means that they need to make their pension pot last longer and this might mean sacrificing quality of life in order to avoid running out of money.
Financial confidence
The Financial Conduct Authority (FCA) acts as the regulator to a number of different pension schemes, they periodically release a report on the financial position of people in the UK called the ‘Financial Lives Survey’.
It’s an epic publication, some 400-odd pages, but one statistic, in particular, caught my eye: 1 in 5 women have low financial confidence in selecting, understanding and engaging with financial products, including pensions. This may extend to making decisions about retirement, how much to put in a pension, and making sure that there is enough to see them through retirement.
This will also include seeking financial advice. If people are uncertain as to who to talk to about their pension, what their investment options are, and even when to begin accessing their pension, this will have an impact on the amount in their pension when they come to retire.
Pension auto-enrolment
Between the ages of 22 to 59, the Institute of Fiscal Studies found that 59% of women were saving into a pension. Compare that with their male counterparts, of which 66% save into a pension.
But such is the difference in average pay between the genders, women were actually found to be contributing a higher proportion of their pay into their pension. Therefore, the question comes as to whether the gender pension gap can actually be closed until its pay gap equivalent has been resolved first.
In 2012, auto-enrolment was introduced by the Government. This required employers, meeting certain criteria, to automatically enter all employees into a workplace pension scheme. You could opt-out of your employer’s scheme, but they couldn’t opt out of their responsibilities. The introduction of auto-enrolment opened up pensions to many who previously may not have had a pension, or who were not contributing to their personal pension. It provided a ‘hands-off’ foray into pensions.
The contribution amount for auto-enrolment is currently 8%, being made up partly by you as the employee (5%) and your employer (3%). For some, this will be the only way in which they save towards their retirement.
However, the current criteria means that you need to be earning a minimum of £10,000 from a single role, and be over the age of 22. The majority of people who fall outside of this criteria are women, creating further pension inequality.
In a positive move this summer, the Government passed a Bill through the House of Lords to extend the auto-enrolment criteria and remove the lower earnings gap, as well as lowering the qualifying age to 18. Theoretically, this opens workplace pension saving up to a whole new demographic and will proportionally benefit women in saving for their retirement.
Without dampening this positive news, I do fear that we are running into an issue with auto-enrolment, in that there isn’t the educational framework in place to help people make the best decisions for their pension. I fear that pretty soon, people new to auto-enrolment will think ‘I have a pension, but so what?’.
What can we do to close the gap?
There are a number of practical steps that can be taken to help close the gender pensions gap.
One thing is that we encourage everyone to talk about money and long term savings. That isn’t just people that are involved or work in pensions, it is about talking to our families, friends and colleagues. It’s especially important to talk about pensions, that the government contributes to them through tax relief and how you can set goals for retirement and how you can meet them.
I work in the pensions industry, so I am used to talking about pensions all day, but even still I talk about my aspirations for retirement with my husband, with my dad and my girlfriends, they don’t need to know the monetary value, but just the fact it is important so everyone can have the retirement they want, for me that includes a long dreamed of cabin in northern Norway and a well exercised golf membership.
Education in the workplace is also really important. Whether companies bring in external financial advisers, or run financial wellbeing webinars, these touchpoints with pensions are critical to make sure that pensions are engaged with, and that people are at least aware of where their pension is invested. There is a new, albeit delayed, initiative called Pension Dashboards, which is due to go live towards the end of 2026. The Dashboard will show all your pensions in one online place from all providers. This will provide a great opportunity to sense check your pension pot and see if you are saving enough for your retirement. I also feel this will help us all feel that it is our money and not something that comes out of our salary each month that isn’t really well understood.
Another way that the gender pension gap might close is more flexible working patterns. With women more likely to take career breaks for childcare and caregiving responsibilities, flexible working patterns may support women to maintain an income and therefore provide them with an opportunity to pay more into their pension. It may also help in terms of career advancement.
Using financial literacy to close the gap
Unless we all take action in relation to financial education, helping those around us and encouraging those around us to learn and understand more, people may not benefit from key opportunities presented by changes made by the Government to long term savings policy such as the extension of auto-enrolment.
The financial services sector also needs to take responsibility and not assume when talking about financial products, that everyone has a basic level of financial literacy and understanding. When this is the case, the knock-on effect is that people don’t know the right questions to ask. To help solve this, we need to go right back to square one, which is traditional education. Financial education should be taught from primary school, of course at a basic level, right through to the end of secondary school. Pupils should be taught what investments are, how a mortgage works, how to avoid and manage debt and why a pension is so important to think about when you are young and able to work, not just when you are approaching the latter years of your career and thinking about retirement. Giving the younger generations the tools to effectively manage their finances is a glaring hole that the Government needs to fill, and quickly.
Financial literacy in the context of pensions should also extend to things like divorce settlements and pension sharing orders. These are in essence a court document that states the split of pension assets as part of a divorce. In 2022, it was estimated that 70% of divorcing couples didn’t factor in pensions into the division of assets. Bearing in mind that in many households a pension will be the largest household asset apart from a home, more accessible education throughout the divorce process for example, could act as a prompt for people to consider pensions when going through that process.
What do you want from your retirement?
Those who engage with their pensions, only when they are thinking of retirement, might come to find that their pension doesn’t match up to their vision of retirement. In the Financial Lives Survey, there is one quote that stuck with me, expressing regret at leaving their retirement and investing planning to later in their working life.
We are expecting people to know how to save for their retirement without appropriately educating them and providing them at the least, a basic level of financial literacy. I asked my friend who works in sports therapy about their pension plans. Their reply was “well I see ‘pension’ on my payslip so I assume I’m paying money somewhere”. When I asked where it was going, what their pension pot was and what they think they needed for retirement, the answer was similarly vague. Although admitting to being laissez-faire about their pension saving, my friend admitted they didn’t know anything about pensions, and rather expected there to be enough in their workplace plan, along with their state pension, to cover them in retirement.
This attitude isn’t uncommon, and I attribute no blame either. She doesn’t work in financial services and her only engagement with her pension is when she gets a pension statement once a year. She hasn’t got any experience with pensions, and her workplace doesn’t promote any initiatives around education. She admitted that she didn’t even know who she would talk to about retirement planning.
Without financial education, we can’t expect people to know what they need in their pension. We should all be regularly considering our retirement. What lifestyle do I want? What do I want to do, where do I want to go? And fundamentally, how much do I need for my retirement? A personal pension allows you to create the pension that you want, invest in what matters to you and build towards the retirement that you want. But this is underpinned by understanding financial goals and having sufficient financial literacy to see them through.
So, the question is, do you have the tools you need to achieve your retirement goals?
Caitlin Southall, Pension Technical Manager, Curtis Banks
