A woman wrapping bandages around her fists before a boxing match

According to the Charted Insurance Institute’s (CII) Pension Life Journeys report, the average pension pot for a 65-year-old woman in the UK is just £35,800, one-fifth of the average pot held by a man of the same age.

This gap in pension savings – as a result of having children, receiving lower average wages, and living for longer – is thwarting women’s financial resilience and leading to insecurity in later life.

Keep reading for some of the main factors causing the gender gap, what can be done about it, and how long-term financial advice can help.

Employment prospects, career breaks, and lower wages create a gender pay gap

Scottish Widows’ Women and Retirement Report 2020 looked at the gender pay gap and found that:

  • 75% of the UK’s part-time workers are women
  • Women in full-time work receive a median wage that is, on average, £6,100 lower than men
  • Average annual earnings across all employment is £10,800 less for women than men.

Young women are less likely to study STEM (science, technology, engineering, and maths) courses than young men, so fewer enter STEM careers.

Jobs in this sector attract some of the highest salaries so better careers advice might be one way to raise awareness of this issue, highlighting the impact of career choices made at a young age on financial security in later life.

The gender pay gap leads to a gender retirement gap

Lower average earnings, fewer workers in full-time employment, and gaps in pension contributions when starting a family, all lead to a gender retirement gap.

Scottish Widows found that a woman on the median wage, with an average pension savings rate over a 44-year career, would retire with a pension pot £100,000 lower than a man in the same position.

The CII report, meanwhile, states that a 65-year-old woman has, on average, a pension pot one-fifth the size of a man of the same age.

Those who become mothers typically have their first child at age 29 and recent data suggests it is around this time – between ages 25 and 34 – that the gender pension gap first appears. In terms of pension wealth, the gap grows from 9% for those aged 25 to 34, rising to 46% by age 55.

The State Pension

Reviewing pension provisions is vital, but it’s not just young women who should keep up to date with their retirement planning.

Many older women are due back payments of the State Pension, and while some will be paid automatically, others will need to be claimed. These can only be backdated for 12 twelve months, so the sooner a claim is made the better.

The issue resulted from a failure by the Department for Work and Pensions to apply an automatic uplift – the married women’s rate – to married, divorced, and widowed women’s pensions. The problem was the result of a computer system update back in 2008.

If you didn’t receive the automatic uplift, you could be eligible for compensation so be sure to find out if this applies to you.

Other factors in brief

1. Outdated cultural perspectives

Old-fashioned attitudes prevail, with gender stereotyping seeing women in undervalued – and lower-paid – roles, in social care or early years childcare provision, for example. As society continues to evolve, these attitudes become increasingly outdated.

2. Higher life expectancy leads to higher care costs

While UK life expectancies are growing, so too are the numbers of years that we can all expect to live in poor health. Women have a higher life expectancy and that means putting more aside for later-life care.

The average cost of residential care for women aged 65 to 74 entering a care home is £132,000. The figure for men of the same age is £82,000.

3. New “no blame” divorce laws could disproportionately affect women

Rule changes that came into effect in April 2022 could lead to a spike in separations, as couples no longer need to allocate blame to get divorced.

During a divorce, a woman might choose the security of a house over a proportion of their partner’s pension, without knowing the pension’s value. Understanding the true worth of a pension isn’t easy, nor is ensuring it is valued correctly – a process which can be more complex for defined benefit plans than for money purchase ones.

Seeking advice about pension sharing on divorce is key.

As women are likely to have a lower pension provision – possibly due to time out of work to raise children – women are far more likely to be adversely affected by a lack of pension sharing.

4. Cohabiting women face financial issues too

Cohabiting is not recognised in law. A woman splitting from her partner could find herself in financial difficulty, particularly where the woman is the main carer of children.

5. A workplace pension gap

Women working part-time may not earn enough to be eligible to join their employer’s auto-enrolment pension scheme.

Previously, if the auto-enrolment scheme was a “net pay” scheme, unless the woman paid tax, she would not benefit from tax relief on any pension contributions she paid. In October 2021, however, the government announced that low earners in net pay schemes will be able to claim top-ups from 2024/25. The first top-ups will be provided by the 2026/27 tax year.

A relief at source scheme gives a woman to receive tax relief automatically and she can pay up to £3,600 a year and receive 20% tax relief even if she has no earnings.

Closing the gender wealth gap for future generations

There are many important issues facing women and their financial futures, from the availability and salaries of STEM jobs to the pension gap around childbirth and the difference in median wages.

Discussing these issues with your daughters and granddaughters is key to ensuring future generations of women don’t face the same disparities. We can help your loved ones to understand:

  • How much income they’ll need in retirement and for how long
  • The impact of time out of the workplace
  • The importance of starting early, both in terms of saving and also with engagement and financial education.

Get in touch

If you think you might be due State Pension compensation, you have a daughter or granddaughter affected by any of the above issues, or you have questions about any aspect of your long-term financial plans, please get in touch.

Contact us now to find out how our Chartered financial planners could help you.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.