The gender gap, pensions and retirement

Unfortunately the gender gap is still alive and well for both pay and pension savings. So what can women do to counteract it for a comfortable retirement?

The savings and retirement gap and you

Statistics from the Office of National Statistics (ONS) have shown that although the gender pay gap has been declining slowly over time, there’s still a significant gap between the earning power of males and females. And research from The Centre of Economics and Business Research (Cebr) showed there could be a gap of more than £180,000 between the pension savings of men and women over the age of 55.

There are though some simple steps that women can take to boost their retirement savings, and in turn, their income in retirement.

Step 1 – Check your state pension forecast now

During your working life, you make National Insurance contributions (NICs). Missing years or errors in your NIC record can mean you don’t qualify for the full state pension (£185.15 a week for a single person in 2022/23).

By checking your state pension forecast at www.gov.uk/check-state-pension, you’ll get a clear idea of what you can expect to get once you reach state retirement age. Which means you can accurately factor this into your planning.

This also gives you time to get any errors corrected. And if you have gaps in your NIC record, you may be able to make additional contributions.

Another less known but particularly valuable option is if you can afford to delay taking the state pension. You’d currently receive an increase of 1% in your state pension income for life for every five weeks you delay taking it. If you delay for over a year, you get the lump sum of money built up over that time, as well as interest 2% above the Bank of England base rate.

Step 2 – See what retirement income you could get

Most people tend to think of their pension when it comes to retirement income. But it’s important to look at all your possible sources of money together.

The state pension, personal and workplace pensions, alongside other savings and income, can combine to give you a comfortable standard of retirement living.

Step 3 – Have a target for your retirement pot and a plan for meeting it

The key to improving your savings and retirement income is actively planning for your retirement future.

You could target a value for your retirement savings pot. Some suggest this should be the value of 10x your target retirement income. For example, if you’re targeting an income of £20,000 a year, your target retirement savings pot should be £200,000.
Have a plan for how much you want to save between now and your planned retirement date. This could be as simple as working out the maximum amount you can afford to pay in each month or year.
Another rough rule of thumb suggests you take the age when you start saving for your retirement and divide that by two. This figure is the percentage of salary you’d then save until you retire. So if you started saving at 46, you’d need to save 23% of your pre-tax salary each month.

Whatever approach you take, actively engaging with your future retirement and saving for it is key. This can be overwhelming. So if you need help, think about getting professional advice.

Step 4 – Pump up your pension saving

Pensions can be a particularly valuable way of boosting your retirement income.

If you have a workplace pension, you’ll have to contribute at least 5% of your salary to it, topped up by a minimum 3% from your employer. On top, you’ll generally get tax benefits of at least 20%, meaning for every £100 you pay into a pension, the government pays in £20, making the total contribution £120. And this could be higher if you’re a higher rate taxpayer.

Many employers also match your additional contributions up to a certain figure – which could significantly increase how much goes into your pension every month. Here’s an example:

Your contribution (5%) + Employer contribution (3%) + Your additional contribution (5%) + Employer matching contribution (5%) = 18%

If you’re on maternity leave, it’s worth continuing your pension contributions if you can afford to. Unfortunately, if you stop paying into your pension, so can your employer. Even if you aren’t working and are able to make payments into a pension, it’s worth considering doing this as they’ll be boosted by tax relief.

Step 5 – Make the most of your ISA allowance

ISAs are a simple and tax-efficient way to save money. You can currently save up to £20,000 into an ISA each year, and you won’t pay tax on any interest or investment returns.

But they’re also a tax-efficient source of income when you retire as you won’t pay any tax when you take money out. Because of this, ISA savings can be a great way to supplement pension income.

If you have a Stocks and Shares ISA, remember that the value of investments can go down as well as up, and you could get back less than you paid in. Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment.

Concerned about your retirement income?

Think about getting professional advice. A financial adviser can help you assess your options and put a plan in place. Find out how abrdn's financial planning services can help with your retirement planning.

The information in this article should not be regarded as financial advice. Information is based on our understanding in March 2023.