Women’s lower earnings create an annual pension deficit of £1,300

A record three out of five women are on course for a decent retirement, but there is still a massive savings gap with men, new research reveals.

Some 59 per cent of women and 60 per cent of men are now putting 12 per cent of their income into a pension, a level considered ‘adequate’ for a relatively comfortable old age.

But due to lower salaries women are saving about £2,300 a year, less than two thirds of the £3,600 men manage to save, according to an annual pensions report from Scottish Widows.

Pension trends: Scottish Widows says younger women are least likely to be saving an adequate 12 per cent of their income

Pension trends: Scottish Widows says younger women are least likely to be saving an adequate 12 per cent of their income

Pension trends: Scottish Widows says younger women are least likely to be saving an adequate 12 per cent of their income

The gender pay gap – still at 15.5 per cent – childcare duties, and latterly the burdens of the pandemic are hitting women’s ability to save as much as men. 

A woman would have to work an extra 37 years to match a man’s pension pot, which would mean beyond the age of 100 if he stopped at state retirement age, says Scottish Widows.

The 12 per cent of income saving level is made up of people’s own contributions, free cash from their employer, and a top-up in the form of tax relief from the Government.

This outstrips the current 8 per cent auto-enrolment minimum, although some experts argue every worker should try to save 15 per cent of their salary in a pension to ensure a comfortable retirement. 

Scottish Widows used median, or midpoint, salary levels drawn from official statistics for 2019 to calculate the annual amounts people are saving for old age.

These were £30,400 a year for men, making 12 per cent £3,648, and £19,600 for women, with 12 per cent £2,352.

How to boost your pension

Financial adviser LEBC has produced a guide offering practical tips to women on how to increase retirement savings and help close the pensions gap. Read more here.   

The firm says women in their 20s are least likely to be saving an adequate 12 per cent of their income. Just 46 per cent are doing so, compared to 56 per cent of men the same age, it found.

Some 64 per cent of women aged over 50 reach this threshold, and 68 per cent of men in that age group.

Not saving more while young means women miss out on the benefits of compound investment growth, which gives contributions to a pension made early in life a substantial boost over time, points out Scottish Widows. 

It says women shouldering childcare responsibilities are far more likely to work part-time, leading to both lower earnings and an even larger gender pay and pensions gap.

Women from ethnic minorities face an even bigger challenge. There is a 28 per cent hourly earnings difference between Pakistani women and white British men, the firm notes.

Scottish Widows makes the following recommendations to help women save more for retirement, including many reforms to auto enrolment.

– Auto-enrolment contribution rates should be raised

‘We eradicated our gender pay gap within a year!’ 

Finance firm boss reveals three key steps for small businesses to tackle wage disparity – read more here.

– Employers should pay into pensions even when staff opt out of auto enrolment

– Auto enrolment should be extended to the self-employed

– The minimum age for automatic enrolment should be lowered from 22 to 18 to help mitigate future part time working and career breaks

– The minimum earnings threshold of £10,000 should be scrapped to help part-time workers and those holding more than one job

– Including pensions in divorce proceedings should be compulsory

– Pension payments are already made during maternity leave, but existing arrangements should be enhanced.

Jackie Leiper, managing director of workplace savings at Scottish Widows, says: ‘While we’re heartened at the record levels of saving, there’s still a mountain to climb before we reach true gender pension parity.

‘Women face decades of extra working before they’ll have a pension to match that of a man’s, which is unfair and unacceptable.

‘Until we can resolve structural inequalities, from the gender pay gap to the uneven division of labour at home, we will never have pension equality.’

She adds that in a matter of months the pandemic has reversed years of progress, as women are more likely to be working in affected industries like hospitality, where many have been furloughed, seen their hours reduced or been made redundant.

‘We’re calling for urgent pension reforms that will help more women save more for retirement, including improved childcare provisions, enhanced pensions for those on maternity leave, the inclusion of pensions in divorce proceedings, and the scrapping of the auto-enrolment minimum earnings threshold.’

Helen Morrissey, pension specialist at Royal London, says: ‘Any narrowing of the gender pension gap is to be welcomed but we can’t ignore the fact that the system remains hugely stacked against women.

‘Retirement prospects are damaged as soon as women leave the workforce to carry out caring duties and the lack of affordable childcare means many women are unable to plug the gap.

‘This is an issue the Government must tackle urgently if this situation is to be resolved.’

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