The pension contributions gap between men and women has widened significantly for 30 year olds in the last year with potential knock-on effects down the line as new figures show women’s pensions pots in their 60s are just over half those of men’s.
The study from Aviva, based on workplace pension data for just over five million pension plans, shows the gender pension gap begins to widen significantly from the age of 35 and that the gap between women’s and men’s pension contributions for 35-39-year-olds is 21%, up on the 18% gap last year. It then increases to 24% for 40-44-year-olds and 27% for 45-49-year-olds before stretching to 32% for 50-54-year-olds. Aviva says the gap for women aged 45 and over is reducing, possibly due to greater awareness about the impact prompting action to address it.
The amount paid in pension contributions has a big impact on retirement income, with women aged 60-65 years old having pension pots which are on average just over half (57%) the size of men’s pots at the same age.
Michele Golunska, Managing Director for Wealth and Advice at Aviva said: “This suggests a clear line in the sand around the age that women are often making milestone career and childcare decisions and considering opting to work part time. Pension contributions are unlikely to be a deciding factor when considering whether to work part-time, but what is important is that the long-term impact on a pension is understood when making that decision. This is crucial to good financial planning. Some might consider upping their pension contributions, but this would have to be carefully balanced against disposable income. An option that some parents may consider is sharing the caring responsibilities to help spread the long-term impact on pension savings.”
Aviva is calling for a roadmap to review automatic-enrolment (AE). It would like to see the lower qualifying earnings threshold (LET), currently set at £6,240 per year, removed. This would mean women in a pension scheme would get an employer pension contribution from the first pound they earn.
Aviva’s tips on how to reduce your pension gap:
- Make use of digital technology to help understand if you are on track for a financially comfortable retirement. Aviva’s online retirement tools My Retirement Planner and Shape My Future are free to use.
- If you are working part-time and automatically enrolled into a workplace pension scheme, consider increasing your monthly contributions, if it is affordable.
- If you earn less than £10,000 per year, speak to your employer about your options for joining your company pension scheme.
- If you are thinking about reducing your working hours to help balance family life, you might want to consider whether it is better for you or your partner to work part-time. As part of those considerations, you might want to look at which of you gets higher employer pension contributions.
- When it comes to saving into a pension, starting early allows a small contribution to build up over time.
- Long term relationship circumstances can change and, should divorce become a possibility, keep pensions at the forefront of your mind when splitting assets. Sharing pensions as part of a divorce or dissolution of civil partnership the same way as any other wealth does not happen by default.
- Check your National Insurance record to see if you will get the full State Pension amount when you retire. You need a total of 35 years of National Insurance contributions, or, in some cases, you can apply for credits. If it looks like you might be short, you might have the option to pay to fill in the gaps.
- Apply for child benefit even if your overall household income means you need to pay it back through a high-income child benefit charge. If you are not working while looking after a child, you get state pension credits automatically until your youngest child is 12 years old if you are claiming child benefit. If you do not claim child benefit you do not receive the credits.
- Talk to your employer about the policies they offer. For example, Aviva offers six months’ equal parental leave irrespective of gender, alongside salary exchange. This means employees who might only receive statutory maternity pay for part of their parental leave maintain full pension contributions.
- Seek guidance or professional advice: You can get impartial guidance on money, pensions, or debt from the government’s free MoneyHelper service. You could also consider looking for a professional financial adviser. Advisers may charge for their services, but the advice you will receive will be tailored to your individual circumstances. For those who are over 50 and considering their pension options, the government-backed Pension Wise service from MoneyHelper can provide free guidance.