Mind the Gap

While the gender pay gap has taken centre stage, leaving us familiar with the grim realities of pay inequality, waiting in the wings is its lesser-known but equally worrying bedfellow, the gender pension gap - an issue leaving women woefully unprepared for retirement.

With what feels like an ever-tightening squeeze on our incomes, the prospect of saving money may feel like a fairy-tale to many, but the good news is that women are in fact saving more than ever before. Since 2007/08, the average savings of women has risen 4.6%, according to a recent report from Scottish Widows, which translates to an additional £5,900 in retirement income each year. However, the report also highlights what has been described as a ‘gender pension gap’ - an alarming £78,000 discrepancy in the average pension savings of retirement-age men and women.

While the pension gap might not have received the same attention as the gender pay gap, this is no reflection on the scale of the issue. A report published by trade union Prospect found that the gender pension gap (39.5%) was more than double the size of the total gender pay gap (18.5%), leaving the average female pensioner £7,000 per year worse off than their male counterparts.

As for an explanation, fingers may first point towards the gender pay gap. After all, earn less and it figures that you’ll save less too. But currently the gender pay gap only explains approximately 28% of the pension gap, according to the Pensions Policy Institute (PPI). Clearly there are a variety of other factors at play, because as the UK gender pay gap narrows, the same cannot be said for the gender pension gap.

One obvious component is the fact that women spend more time away from work, or are part-time employees, a fact that the PPI estimates accounts for almost half of the difference in retirement savings. Perhaps, unsurprisingly, lower-earning women have also been less able to save over the past decade thanks to an income squeeze that has seen their income stretched across rising childcare costs and house prices. Less than half (47%) of women earning between £10,000 and £20,000 are saving enough for retirement compared with two-thirds (65%) of those earning £40,000 or more.

But women also face a ‘motherhood penalty’ – the opportunity cost that having a child has on your pay, pension and career prospects. A report by The People’s Pension found that after having children, nearly half of women reduce their hours, with over a third (36%) leaving work altogether and 15% returning in a lower grade or lower paid role. While for some, these figures represent a personal choice, for many, it’s an unavoidable sacrifice. According to the same survey, almost four in ten women working part-time would choose to increase their hours if childcare were cheaper. With a reduced salary and crippling childcare costs, saving for retirement is, understandably, deprioritised.

To make matters worse, 2013 saw changes to the child benefit scheme, which, until then, had been a universal, non meanstested, tax-free benefit. The introduction of the new High Income Child Benefit Tax Charge (HICBC) meant that once a parent’s income reaches £60,000, a 100% tax is applied to the high earner, effectively cancelling out the benefit.

For those earning between £50,000 and £60,000, a portion (1% for each £100) is repaid. Those no longer entitled to the full amount can either opt to pay it back via a tax bill or tick a box on their child benefit claim form to say no to payments. With the already significant time constraints that most parents face today, it's understandable that those on higher incomes might choose to avoid the administrative burden, in turn missing out on valuable NI credits, which count towards your State Pension.

These constraints create a perfect storm, meaning many women are missing out on ‘free money’ from employer contributions and tax relief. Not only is the discrepancy itself concerning, but women should be saving more than men. According to the World Economic Forum, women can not only expect to live longer and spend more time living alone in retirement, but their retirement needs are more expensive too. It’s a worrying thought, so it’s time to act now and narrow that pension gap. This is how…

How to plug the gender pension gap

Know where you stand

Ignorance is not bliss. Check your workplace pension’s annual statements for an estimate of your monthly retirement income. You can also request a State Pension statement to know exactly what you already have in your pot.

Get what you’re owed

Make the most of your employer’s contributions and government tax relief. This tax relief on pensions means that some of your money that would have gone to the government as tax goes into your pension instead. Many employers match the contributions their employees pay, so it’s worth checking you’re getting what you’re entitled to.

Go it alone

If you’re self-employed or not eligible to join a workplace pension scheme, set up your own personal one now. Your options include stakeholder plans (which have capped charges) and SIPPs (which can offer a wider investment choice, but often come with higher charges).

Don’t miss out

Check the Pension Credit, which is designed to top up your income to a minimum level, and the Attendance Allowance, which you can claim if you have an illness or medical condition. You may also be entitled to help with council tax, heating costs and Cold Weather Payments. Visit gov.uk to check eligibility.

For more financial inspiration, visit gofundyourself.co @go_fund_yourself_