Top tips to help you close the gender pension gap
Part-time work, lower wages and absences from the labor market are the main contributors to the gender pension gap.
Women might start their careers just as likely to contribute to a pension as their male colleagues, but over time these factors can derail women’s retirement planning.
If you’re worried about your retirement, here are some tips to help you manage your pension.
This is not personal advice. If you’re not sure what’s right for you, seek financial advice. Pension and tax rules may change, and benefits depend on your situation. You also cannot withdraw money from a personal pension until at least age 55 (increasing to age 57 from 2028). The value of investments will rise and fall, so you may get back less than you invest.
The government’s free and impartial Pension Wise service can help people aged 50 or over understand what type of pension they have, how to access their savings and the potential tax implications of each option.
You can call Pension Wise directly on 0800 100 166 or make a reservation online.
What is the problem?
In 2019/2020, the gender pension gap amounted to 37.9%, much higher than the gender pay gap which was estimated at around 15.5%.
An increase in flexible working has proven popular during the pandemic and continues to be essential in helping women balance their careers with family responsibilities. This means that more women can work and, in doing so, increase their pension contributions.
However, while many of us return to the office, it remains to be seen how many employers will keep these flexible arrangements in place for the long term.
Revised working practices will be essential to help women build larger pensions, but there are other things you can do to increase your contributions. Over time, even relatively small actions can have a big impact on how much you’ll get in retirement.
Make Auto-Enrollment Your Retirement Hack
The first thing to think about is how you can increase your retirement contributions over time. Under self-enrolment, the minimum contribution is currently 8% on relevant earnings and many, but not all, company pension schemes are set at these levels.
This is generally made up of 5% of the employee and 3% of the employer. That’s a good start, but for many people, 8% alone won’t be enough to generate a decent income in retirement. Especially if you had to take a career break for some reason.
A good way to increase your contributions is to try to commit to increasing your pension contribution beyond any new salary adjustment each time you get a raise or a new job.
Prices are rising and budgets are tight, so this should only be an option if you can afford it.
But if you can, it’s a good way to increase your contributions and your retirement income. This is because you are taking the increased contribution from money you don’t normally spend, rather than having to cut your current budget to pay for the additional contributions.
You’ll receive a top-up from the government on any extra money you pay through tax relief – as long as you haven’t exceeded your annual allowance. This is the maximum that you can contribute each year to your pension while benefiting from tax relief. For most people it’s £40,000. Over time, this could really increase the amount you put into your retirement fund.
The pitfalls of the annual retirement allowance – how to avoid them
Employer matching and wage sacrifice
Another potential way to increase your contributions is to see if your employer is willing to increase their contribution if you increase yours.
Many employers stick to auto-enrollment minimums, but there are others who offer what’s called employer matching – this means they’ll match your contribution up to a certain level . Say you increase your contribution to 6%, they might do the same. This can be a great way to get a real boost to your added total, for a relatively small boost to yours.
Some employers will point out that they offer employer matching as this can be a real bonus when it comes to recruiting and retaining people. However, not all employers communicate this widely. It’s worth asking your employer if they match the extra payments. If they do and you can afford it, it’s worth making the most of it.
It’s also worth checking to see if your workplace pension plan is set up as a wage sacrifice arrangement. These are popular arrangements where you agree to reduce your salary by an amount equal to the amount you wish to contribute to your pension. In return, the employer pays this amount into your pension.
Because you get paid less, you pay less income tax and less National Insurance, so you keep more of your take-home pay. But you kept your pension contribution at the same level. This can be a good way to maintain or even increase your contributions.
There is still a long way to go to close the pension gender gap and broader workplace reform will likely be needed. However, it’s worth checking to see if you can benefit from any of these hidden benefits to put you on the right path to building a more financially resilient retirement.
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