When saving in a pension early, the money paid in has the longest time to grow, which for most is beneficial as starting salaries are not typically high. Then contributions made in later years are often of higher value when salaries have increased with career length. However, according to Scottish Widows, this is not the case for everybody. Their ‘Women and Retirement Report’ (2022) shows that women have a significantly lower average pension fund than men: £260,000 versus £137,000.
Women need a pension just as much as men, especially as they live longer on average, yet their final pot is much lower than required. So, you may be asking, why is this the case? Well, research shows that women typically face a triple whammy of pension contribution reductions: Child care, later life care, and divorce.
Firstly, child care is often considered a contributor to the widening pension gap as traditionally it is women who take career breaks, sometimes for years, to raise children. This is not the case for all women but for many, it has an invariable impact on pension savings. Unfortunately, for many this reduction in contributions is not just a short-term gap that they can try to close later on. Depending on home-life circumstances, some women can’t return to full-time work or find they have fewer opportunities to climb their career ladders.
Secondly, later-life care has a similar effect. Again, this may not be the case for every woman, but as noted with child care, they are more likely to make work sacrifices to undertake a caring role. Thus, caring for an elderly parent can also mean reduced hours, reduced pay, or sometimes stop working altogether.
Individually, these breaks can affect the final pot value, even more so if taking both types of care leave or if it is a single-earner household.
Thirdly, an issue that is gaining more attention is that divorce may cause women to experience further pension inequality. When couples divorce, their assets get split but pensions are often overlooked, traded, and in many circumstances not valued at their ‘true’ value. When valuing a pension it is not as simple as looking at its current worth, it needs to be looked at in comparison to the partners.
Make sure you aim to contribute as much as possible, for as long as possible into your pension, starting right from the earliest opportunity. Especially, if you’ve had or are likely to have employment breaks. Experts are working to close this gap, so if you have any concerns about your pension, speak to a chartered or certified IFA, even better if you can speak to advanced pension specialists.
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