It’s pretty well documented that on average women live longer than men. But when it comes to retirement, women lose out due to gender pay gap.
A recent study has shown that if young women pay into their pension schemes in line with the government’s auto-enrolment contributions, they would end up with a pot around 11% less than their male colleagues. The study by Fidelity found that men aged between 25 and 34 working full time will, on average, have accumulated a pension pot worth £142,836 when they reach 68. But the average pension pot for full-time working women is £126,874.
WHY IS THERE THIS DIFFERENTIAL?
One reason is because some women miss out on pension payments if they take time off work at the beginning or end of their careers. Another is for those years when they are working, women are more likely to earn less than men. Given that women will spend around 4 years longer in retirement than the average man, women will need to be pension savvy to overcome this shortfall of retirement savings. Women therefore need to build up bigger savings pots than men. It means pensions savings should be a priority, even during their most expensive times of life. Thanks to the introduction of auto enrolment, the percentage of women employed in the private sector with a workplace pension has nearly doubled since 2012. But there’s still a big difference between the size of men and women’s pension pots and this will not ever change unless women plan better for their futures in retirement.
HOW DO I CATCH UP?
Savvy investors can close the gender pension gap. Depending on their age, if they increase their pension contributions by a small amount they could close this gap more easily than first thought. For instance, if a woman aged 29 increases her pension contributions by an additional 1% of her salary and retires at 68, this gap could be closed. Based on the average salary for women, this would work out at just £35 per month. The above example shows that a small amount extra added now can make a significant difference and if this is regular per month throughout their working life, they can close the gap with men, and secure a more comfortable retirement.
Women make good investors. Although there’s a clear difference between men and women’s pension pots, when it comes to investing, women may actually have the upper hand. There is now evidence to suggest that females have out-performed men with their investments which saw the value of their investments grow 0.78% faster than their male counterparts over a 3 year period.
If that performance was repeated every year for 30 years women would, on average, end up with around 20% more than men. If they topped up their pension and invested wisely, they could not only close the pension gap, but beat it. Remember, there are no guarantees that past performance can be repeated. Investments can fall as well as rise in value so you could get back less than you put in.
WHAT SHOULD I DO TO CONTRIBUTE MORE TO MY PENSION?
Talk to your employer about increasing your contributions, even by a small amount, this could make it even more worthwhile when you come to retire. Alternatively, you can open a SIPP (Self Invested Personal Pension) and set up a regular direct debit or make one-off contributions whenever you can. Remember you can’t access money in your pension until age 55 (57 from 2028).
The value of your investment and the income from it can go down as well as up and you may not get back the original amount invested. Past performance is not a reliable indicator for future results. Levels, bases and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. Please contact us for further information or if you are in any doubt as to the suitability of an investment.
Contact us to discuss your pension on 01424 730000 or email firstname.lastname@example.org
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