The report by Now Pensions and the Pensions Policy Institute (PPI) found women would need to work an additional 19 years to close the gap.
Here, Which? explains why the gender pension gap exists, and offers solutions on how you can keep your retirement pot on track.
What is the gender pension gap?
The gender pension gap refers to the different retirement outcomes for men and women.
According to its latest report, women’s pension wealth is a third less, relative to men. It states women have an average of £69,000 when they come to retire, compared to £205,000 for men.
Find out more:Main causes of the gender pension gap
There are a lot of factors behind women generally having smaller pension pots than men, from tending to have lower incomes to being more likely to take time out of work.
Here are some of the main factors causing the gender pension gap.
Reduced earning potential
According to the report women’s average annual income is £24,800, compared to men where the average is £33,000.
The gender pay gap is larger in some industries that have traditionally employed more men than women. The gender pay gap is bigger in South East England and the East Midlands.
This has a knock-on effect as higher-paid jobs are more likely to have generous private pension provisions and bonuses beyond the salary.
Not qualifying for automatic enrolment
According to Now Pensions, of the 14.6 million women employed in the UK today, 2.5 million (17%) don’t qualify for automatic enrolment. This is compared to 8% of men.
To qualify for automatic enrolment, you need to be aged 22 or over and earn at least £10,000 per year through one employer.
And even if you qualify, pension contributions are only taken once the qualifying earnings amount of £6,240 has been deducted. This means an employee earning £10,000 will only have contributions based on as little as £3,760.
Find out more:Time away from the workplace
The report states differences in working patterns account for the biggest shortfall between men and women.
One factor that contributes to this is having children, as women are far more likely to take on childcare responsibilities. For example, in 2021 just 2% of men were stay-at-home parents, compared to 15% of women.
The report adds that the high cost of childcare also plays a factor, as many women go into part-time work or freelance.
A 10-year career gap to have children will cost women an average of £39,000 in lost pension savings.
Find out more:Life expectancy
Women have a longer life expectancy than men, meaning their pension savings will need to sustain them for longer.
Now Pensions said a baby girl born in 2020 can expect to live, on average, until 90 years old. This is in comparison to a baby boy born in 2020, who can expect to live to 83.7 years.
Find out more:What can be done to close the gap?
To increase pension contributions from women who are left out of auto-enrolment, Now Pensions has suggested removing the £10,000 trigger as it excludes women who work multiple jobs (and may earn £10,000 per year collectively between jobs).
It also calls for the lower earnings limit on qualifying earnings to be scrapped so contributions are taken from the first £1 earnt.
The government has pledged to remove the lower earnings limit by the 'mid 2020s’, with speculation this could come in by April 2025. However, for the 2024-25 tax year, the earnings triggers and qualifying band earnings remain unchanged.
Other changes due to be brought in by the government include lowering the age workers become eligible for automatic enrolment to 18.
The DWP said: 'The success of automatic enrolment has transformed the UK pensions landscape and brought millions of women into pension saving for the very first time, and our plans to expand automatic enrolment will benefit women and low earners, once poorly served or excluded from workplace pensions.'
The DWP also added the new state pension, which replaced the former version in 2016, will see the weekly amounts received by men and women even out by the 2040s.
5 ways to keep your pension on track
Here are our tips on how women can boost their retirement income.
1. Claim child benefit
If you take time out of work to raise children, you'll stop paying National Insurance Contributions (NICs) on your income, which determine your state pension entitlement.
However, if you claim child benefit and have a child under 12, you'll automatically get National Insurance credits, which will still count towards your NIC record.
If you or your partner’s adjusted net income is over £50,000 a year, you may have to pay the high-income child benefit charge.
However, it's still worth applying to benefit from National Insurance credits. The charge will not be more than the amount you get from child benefit payments.
Find out more2. Increase your contributions
Check to see how much you're paying into your pension, and increase contributions if you can afford it.
For example, you could increase your percentage contribution if you've recently had a pay rise, or just pay in a lump sum when you can.
Some employers match your contributions, so even a 1% increase could make a big difference to your pot in the long run.
Find out more:3. Plan ahead for maternity leave
Depending on how much maternity leave you take, your income may drop and result in smaller pension contributions during this time. However, some forward planning can get around it.
First, it's a good idea to work out how much your contributions will be reduced by, then to catch them up you could increase your employee contributions before you leave, when you return, or a combination of both.
If you're part of a couple and one of you earns more than the other, or one is taking time out to have a baby while the other carries on working, you could decide to even up both pension pots by having the higher earner pay into the lower earner's pension.
Find out more:4. Consider pension pots if you divorce
Pension pots are typically the second-largest asset in a marriage after property – however, women often walk away from divorces short-changed.
According to Interactive Investor’s Great British Retirement Survey, 67% of divorcees had not discussed pensions during divorce proceedings.
You should get a pension valuation as part of the financial disclosure, and it may be worth paying an adviser to check the numbers. They can also help you pick the best way to share the pension.
Find out more:5. Open a lifetime Isa
If your earnings don't qualify for auto-enrolment – or you have extra money to save for retirement – you could try a lifetime Isa.
The lifetime Isa is a tax-free savings or investments account designed to help savers either buy their first home or save for retirement.
For every £4 you save, the government will add £1 up to a maximum of £1,000 every tax year – but you can only open one of these accounts if you're aged 18-39.
Find out moresource https://www.which.co.uk/news/article/women-need-to-work-an-extra-19-years-to-close-gender-pension-gap-a7yXt5t6zJFU