Pensions for women: closing the gender gap
Career breaks, lower pay and child care are just some of the reasons why there’s a big gap between men and women in terms of pension provision. Invest now to close the gap.
There’s a gender pay gap in the UK workforce that sees some women disadvantaged and undervalued compared with their male counterparts. In the EU, women earn 16% less than men on average. Unfortunately, there is also a gender gap in pension provision, which is even more pronounced. According to consulting group Mercer, the gender pension gap in Europe is 40%.
Why is this? There are a number of factors at play. Mercer highlights women’s under-representation in the workforce, lower pay and family-related career breaks.
The ‘maternity burden’ can be toxic for women’s pension provision. Women who take leave to have children may end up earning less in the long run, whether from missed promotions or because they go back to work part-time or on flexi hours. With the high cost of childcare, some mothers may find it doesn’t make financial sense to return to full-time work, even if they would have preferred to. Once they return, it can take a long time for their earnings to catch up with colleagues, if they ever do. They may reduce their pension contributions while on maternity leave because of the added financial pressures this brings. An employer should keep paying into a woman’s pension while she is taking paid maternity leave, but if she takes a longer period of unpaid leave, they may stop paying in.
The introduction of shared parental leave means fathers can now help shoulder some of the burden, which in the past automatically fell to women. However, women are still more likely to take time off for other family reasons, such as caring for elderly relatives, and this may also mean they lose out in the workplace and their pension pots feel the effects.
A lack of financial confidence is also a contributing factor to the gender gap. Research by consumer website, Boring Money, found women are less likely to invest in the stock markets - 21% of women aged 40 to 55 hold money in the stock market, compared with 34% of men of the same age.
Not enough engagement with financial services providers, less available money, less confidence to make financial decisions, or lack of time could all be to blame for this worrying trend.
It’s a somewhat depressing picture, but there are some positive steps women can take to redress the balance and prepare for a financially secure future. A good first step is to work out how long you might be in retirement, and how much income you will need every year. The results of this exercise might surprise you, as lifespans are getting longer and women typically live longer than men.
The World Economic Forum notes life expectancy has increased rapidly since the beginning of the last century, rising by one year every five years. Babies born today can expect to live beyond 100. Although the gender life expectancy gap is narrowing, women still outlive men by an average of 2.8 years in the UK, according to a recent study.
At the same time, state pension provision is becoming less generous due to an ageing population with fewer workers to support a growing number of pensioners. The age at which you become eligible for a state pension is rising, and it’s unclear how big state pension payments will be in the future. That makes it more important than ever to save for yourself.
Although none of us can predict how long we will live, we should plan for a long retirement. There are some good pensions calculators available online which can help you figure out how many years you might spend in retirement, what level of income to aim for, and how much you need to save to achieve it. Your current earnings and the age at which you begin paying in to a pension will help determine this. Starting as early as possible is crucial, even if you can only afford to put a small amount at first. This is because your money needs time to grow, and the interest you earn can be reinvested to earn interest itself through the powerful force of compound interest.
There are many providers out there offering personal pension plans so you can invest for your own future. You should also make sure you’re using your annual ISA allowance – stocks and shares ISAs are good ways of investing for the long-term in a tax efficient way. And for those who want more control over their pension pots and how it is invested, then there’s the option of the Self-Invested Personal Pension (SIPP).
Read more: What is a SIPP?
However you start investing for your retirement, you’ll need to think about your appetite for risk. This will change depending on your age and how many years you have ahead of you in which to grow your pension pot. Women tend to be more risk averse than men – Mercer found that women were 62% more likely than men to invest in a defensive fund which had lower expected growth. As a general rule, the younger you are, the more risk you will be able to take to maximise your chances of better investment returns. As you get closer to the time you will draw down your pension, you should be invested in lower risk assets like government bonds, so there is more chance of protecting your capital from losses at this crucial time.