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Women already have to contend with the gender pay gap, but experts say it’s also one of the factors creating financial inequality in retirement.
Scottish Widows 2025 Women and Retirement report found that the gender pension gap is actually increasing – and now stands at 32%. Women are on track to make ends meet with an average annual retirement income of £13,000, compared to men’s £19,000.
So why is this happening?
Rowan Harding DipPFS, a financial planner path financialpoints out that the heavy burden of care responsibilities (for children and older generations) are more likely to fall on women.
“There are individuals — and predominantly women more than men — where they have periods of time when they don’t have to do paid work,” she says. “They may still be ‘working’, but it’s not paid in the formal sense, and that leaves those individuals, and as I say, probably more women, with less ability to put money aside for the long-term future.
Taking maternity leave, or staying out of work for longer periods of time to become the primary caregiver, or even reducing part-time hours to manage the rising costs of child care and children’s school schedules – these all contribute to less money in the pension pot.
But you don’t need to have children to be affected by the gender pay gap.
“Women will be in the same positions, in the same roles, earning less than men, and so there will be fewer achievements for them to make decisions about their long-term future,” says Harding – “and that’s probably one of the more subtle issues around the gender pension gap.”
Inequality “happens over many years,” she says, “so it’s one of those things that you don’t quite realize is happening until you’re over the line, that disparity, that inequity, that people don’t think about in their 20s and 30s.”
What should women do to ensure a healthy retirement pot?
1. Think about it in your 20s
“The main thing is that if you’re working for an employer, join the employer’s pension scheme as soon as possible. If your employer offers a pension contribution that’s more than the 3% minimum, take them up on that offer if it’s affordable for you, as it’s kind of free money into your pension,” says Harding.
For the self-employed or business owners, “Be smart about how much you can invest as soon as you can – set up a pension for yourself – but the sooner you start the better.”
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2. Consider some financial advice
“Try and make a financial plan as soon as possible,” advises Harding, “So you’ve got an idea of how much I need to consider saving over a lifetime? What are my goals? What are my goals? A really good financial plan will help you realize this.
“The other thing to consider is really regularly, once a year, maybe more often, but thinking about budgeting and spending. So if you’re lucky enough to be in employment and you’re able to put aside for the future where is your money going. Think about what percentage goes towards various different things – what can you really put aside for the long term?”
3. Think about your goals for the next year
Consider increasing your pension contributions. If your objective is, “‘I want to increase the amount going into my pension by £20 a month, £50 a month, £250 a month’, whatever suits individual circumstances. Then great, make it happen,” says Harding.
“I think we can all procrastinate. I think there are a lot of things that women can do early in their careers to help grow their pension savings.”
If you’re in the final stages of your career and want to increase contributions, Harding suggests making small but regular increases to your pension.
“As you get paid, set it up incrementally and then gradually you increase it, whether it’s every six months, every 12 months, even every month, would be great.
“And suddenly it starts to become the norm and familial, and it becomes much easier rather than paying a minimum amount out of workplace pension schemes – 3% on the employer, 5% on the employee – for them to suddenly think, ‘I have to set aside 20% of my income into a pension’ – that’s a huge leap at once.”
4. If you take a career break, ask your partner to contribute to your pension
Harding says, “It’s not necessarily you who pays the pension. You can get a third party to pay, it could be a family member, it could be a partner. Even if you’re a taxpayer, it will still give you some tax relief. It’s an extra 20% added on top of the contribution that may come from the third party.
For those in relationships, if one partner is doing more work while the other is doing more child-rearing, contributing to the other person’s pension is a way of recognizing that child care is a job (just unpaid and without a pension) – to make it more fair.
Couples should “think not on an individual basis, but about the financial situation of the family as a whole, and consider how they can ensure that one party is not detrimentally affected in the long run – within the scope of being supportable and carefully budgeting for it”, says Harding. “When kids are little, it’s probably not the most exciting thing to start thinking about, but it’s absolutely paramount.”
5. If you have some money coming in, consider putting it into your pension
“There is a limit on the amount you can put into a pension in any one tax year, capped at £60,000 or 100% of UK net revenues. For most people, this is 100% of their salary or income.
“Sometimes, there may be an inheritance, [and you’re] Wondering what to do with that unexpected windfall. It could be redundancies, whatever, thinking about whether or not it could be incorporated into pension arrangements or options for, you know, long-term savings.
Harding doesn’t always recommend putting all your money into a pension for the future – there are plenty of savings options – but, “fundamentally, pensions are still really tax efficient”.
She explains: “The money goes out tax free, which is fantastic. While it’s there, there are no tax implications in terms of dividend tax, income tax, savings, interest or capital gains tax. So it just creates this nice pot. Any profits you make there will be invested, so you can attract further profits.
“Obviously, it depends on how it is invested, there are times when values decline, but at the same time, in the long term, you would expect to see profits.”