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There is good news and bad news. For the good news, you may be encouraged to hear that since 2017, the average pension pot has grown significantly in size. In 2020, employees in large firms in the UK have an average of £120,000 in their pension pots – up 35% from 2017. Yet the bad news is that there is still a large gender gap here.
Today, the average UK male has accumulated £162,000 and the average UK female just £73,000 (i.e. less than half of the former). This is despite growth in women’s pension savings outstripping men’s within the last three years at 38%, compared to 35%. The reasons for this disparity are complex and multifarious, yet it’s important for financial planners such as our team in Oxford to do our part in helping to address this imbalance. Here are some of our thoughts, below.
Reasons for the disparity
In 2020, there is still a pay gap between men and women in the workforce, although it is smaller than in previous years. This is closing slowly; in 2019 it shrank slightly from just 17.8% to 17.3% as employers have been obliged to publish their gender pay gap (since 2017). More women are now in the UK workforce compared to the 1970s and 1980s, enabling more to carve out a greater degree of financial independence. Yet, today’s gender gap in pension savings still reflects some of this historic inequality.
This only goes so far in explaining the current disparity, however. In 2020, women still take the brunt of the childcare in households – often resulting in a career break (perhaps 10+ years long) and subsequent pause in pension contributions. By the time many women are ready to re-enter the workforce, they might need to take a large cut in salary as they start again at the bottom of the career ladder – inhibiting pension contributions further.
Options to address the gap
There are numerous options available to help address the gender gap in pension savings. An argument can be made for new government policy to assist with possible structural factors at play in all of this. Yet, in the more immediate term, women cannot necessarily wait for politicians to come and fix everything. As such, what are some possible solutions to discuss with your financial planner?
- Have an honest discussion with your partner/spouse. If you are currently working and planning on having children, it is likely that the birthing spouse will take at least a few months off from work. Many will want to take longer off, and this is understandable. Yet during this time, how can you ensure your pension is looked after?
- If your partner/spouse plans on continuing to work full-time, for instance, could they help you make voluntary national insurance contributions (NICs) so you can keep working towards a complete record of 35 years in the future, so you can qualify for the full new state pension?
- Could they reduce some of their own pension contributions during the period of child-rearing and divert these funds, instead, into a pension for you (e.g. a self-invested personal pension)?
- If you are already on a healthy salary and have a comfortable income, have you taken a look at your pension contributions lately – regardless of whether you have children or are currently in a relationship? Are you committing as much as you could, or should, in order to achieve the kind of future lifestyle you hope to attain in retirement one day?
If you are interested in starting a conversation about your financial plan, and how best to plan your own future retirement lifestyle, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.
You can call us on 01869 331469