Businesswomen – When was the last time you took a look at your pension pot?

Working women have discovered that the difference between men’s and women’s private pension plans can be a staggering 35%.

Recent reports from the Department for Work and Pensions (DWP) have shown that these figures — which have led to an even wider gender pension gap — have left many women unaware of their impact and unpre­pared finan­cially for their retirement .

What is the gender pension gap?

Defined by taking into account several factors such as: B. the amount of money saved, wealth accumu­lated and income earned in retirement, it measures the inequality between the average retirement wealth of men and women.

In 2023 the DWP published “The gender-specific pension difference in private pension provision’ Report¹ It calcu­lated the true extent of private pension inequality in the UK. This resulted in the following:

• On average, women have accumu­lated 35% less wealth in their retirement than men
• Women invest £510 a year less than their male counter­parts in the private sector
• Women can contribute an average of £2,160 less to the public sector than the average man
• Overall, male profes­sionals invest £10.6 billion more in total retirement assets each year than women.

Why is there an inequality between men’s and women’s pensions?

While the intro­duction of auto-enrolment pension schemes has resulted in more women having access to a pension scheme, there are several factors that can lead to a disparity between men’s and women’s final pension wealth.

A House of Commons briefing report² highlighted the main causes of the gender pension gap:

• Unpaid care work, for small children or relatives
• Part-time employment
• Longer life expectancy for women – and with it the need to finance a longer retirement
• Depen­dence on the partner’s income
• Divorce and thus loss of entitlement to the partner’s pension.

In summary, many of these can be summa­rized as “motherhood punishment”; You will have to interrupt your career due to the birth of children, pay additional childcare costs and subse­quently experience a reduced regular income.

This tends to lead to a signif­icant reliance on the partner’s income and pension for financial well-being in later life, rather than having suffi­cient independent resources.

What can working women do to build their retirement wealth?

It’s never too early to start assessing your pension — getting a head start on your contri­bu­tions now will give you a better idea of ​​what you may be worth later.

Here are three ways you can start preparing:

1. Review your current and future finances

By reviewing and evalu­ating your current finances, you can get a clearer picture of realistic financial goals in retirement.

Then you will know how much you can afford to pay into your pension regularly now and what wealth you can expect to have over time; and whether you are confident that this is suffi­cient to ensure independent financial security in retirement should an unexpected event occur.

2. Agree on “fair” pension contri­bu­tions with your partner while caring for children

For most women, planning to have children also means planning a career break. During the maternity period — and typically longer — new mothers experience a sharp decline in their typical income as they move away from full-time work, which can also affect their pension contri­bu­tions.

Men, on the other hand, generally do not have the same break from work and can therefore build up a larger pension pot in the same period of time.

By agreeing with your partner a balance of regular contri­bu­tions to both of your pensions, you can ensure that your future finances are taken into account while you invest your time in spending time with the children.

If you don’t work or earn any income, you can still pay up to £2,880 a year (£3,600 with tax relief) into a pension.

If you decide to stop working after your children are born, you must also register for child benefit, even if your household income exceeds the threshold for receiving money.

Regis­tering means that if you don’t return to work, you will receive a National Insurance credit towards your state pension every year until your child turns 12.

3. Be smart about managing your pension

There are several ways you can maximize your investment to ensure greater financial comfort in retirement.

• Check old pensions – if you have multiple pensions it can be difficult to keep track. An experi­enced financial advisor can help you under­stand all of the options available to you and how they impact your retirement goals.
• Find out about your risk profile and which fund(s) your pension is invested in. The longer the time until retirement, the higher the investment risk you should take in the next few years.

“Dare to be fair” www.dare2befair.com is a must-read book and a rallying cry for women of all ages. Written by award-winning Chartered Financial Planner and retirement expert Amanda Redman, it challenges you to open your eyes to how you are valued — and to rethink how you value yourself. It’s also a practical guide to help you take control of your financial destiny and become a confident financial decision maker.

SOURCES

1. The gender pension gap in private pensions, Department for Work and Pensions. Published on June 5, 2023. Accessed at: https://www.gov.uk/ Government/statistics/gender-pensions-gap-in-private-pensions/the-gender-pensions-gap-in-private-pensions#:~:text=among%20adults%20aged %2016%20to, a%20contribution%20gap%20from%2017%25.
2. The Gender Pension Gap, Dr. Rajiv Prabhakar, House of Commons Library. Published April 4, 2022. Accessed at: https://researchbriefings.files.parliament.uk/documents/CBP-9517/CBP-9517.pdf (researchbriefings.files.parliament.uk)

Amanda Redman, licensed financial planner and retirement specialist.