5 ways to close the gender pension gap

By the time you’re 45, your pension could be 45% smaller than your husband or brother’s. Here are five tips on how to close the gap this International Women’s Day.

Woman looking at row of traffic cones with gap
(Image credit: Martin Barraud)

While most people undersave for a pension, women in particular are at risk of retiring with significantly less thanks to the gender pension gap. 

The pension gap is one of the biggest inequalities women face when it comes to wealth, and means most women will retire with a pot that is 37% smaller than that of men, on average. That's according to research from Scottish Widows.

Further research from investment platform interactive investor reveals women need to pay in £213 per month more than men from age 45 to match their pension pot by retirement age.

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While the pensions gap is one of the biggest contributors to the wealth inequality women face, they also experience other penalties such as the pink tax, where products targeted at them come with a higher price tag.

We look at how you can help close the gender pensions gap.

1. Start building your pension at a young age

When it comes to building wealth through investing, youth is your friend, so do not put it off. It’s less about timing the market than time in the market, as the old adage goes.

Under auto-enrolment rules, UK employers are legally obliged to provide an employee pension scheme and, as soon as you start working, you will be automatically enrolled (provided you are 22 or older, and earn at least £10,000). 

You will automatically start contributing 5%, and your employer is obliged to contribute a minimum of 3%. You are free to opt out or to reduce your 5% contribution, but doing so could mean that you lose your employer contribution too  – which is essentially ‘free’ money. 

It will also mean that you miss out on the opportunity for valuable investment returns, which should snowball over the course of your investment horizon due to compound returns

2. Increase your pension contributions

As well as maintaining your 5% pension contribution, you should consider upping your contribution if you are able to. 

Investing consistently and over a long time horizon is the best way to build wealth. And while it might be tempting to stash the cash in your bank account where you can easily access it, the data shows that investment returns almost always beat cash over the long run, even when interest rates are high. 

“The good news is that even smaller amounts of extra pension savings make a big difference by the time it comes to retirement”, says Alice Guy, head of pensions and savings at interactive investor. 

“Saving just £50 more each month for 30 years could add over £50,000 to your pension wealth in retirement.”

See our article on how just an extra 1% into your pension can also help close the career gap, the key reason why many women face a pensions shortfall. 

3. Find out if your employer will match your pension contributions

If you pay more into your pension, then it is worth noting that some employers will match your pension contributions up to a certain limit.

Take hold of this opportunity if you have the chance. Again, it is essentially free money and can help you narrow the pension gap if you’re a woman.

4. Pay into your pension while on maternity leave

Women often take time out for maternity leave or to take on care-giving responsibilities, and this can create a large dent in their pension pot.  

When you go on maternity leave, your employer will continue to make contributions to your pension based on your salary before you went on leave. However, your contributions will be based on your maternity pay (which is likely to be less).  

Also, while employer contributions are guaranteed for the first 26 weeks of your maternity leave (Ordinary Maternity Leave), you will only be entitled to them for the next 26 weeks (Additional Maternity Leave) if you are still receiving maternity pay.

If you can afford to, you should continue contributing to your pension throughout your maternity leave. 

If possible, try to maintain the contributions you were making before you went on leave, rather than allowing them to fall to a percentage of your reduced maternity pay.

5. Can your partner top up your pension contributions?

If you take time out of work to carry out caregiving responsibilities, such as looking after young children, speak to your partner to find out whether they can contribute to your pension during this time.

Your decision to take time out of work to pick up unpaid responsibilities is financially beneficial to them, as it allows them to continue working full-time, so it isn’t fair for your pension to take a disproportionate hit. 

Furthermore, a pension is a tax-efficient way to save and invest for your retirement, so topping up your pension is a good way for your partner to shield their money from the taxman.

What is the gender pension gap? 

Lots of people, men and women alike, don’t spend enough time thinking about and planning for their retirement until it’s too late. What’s more, many women are discovering that systemic inequality is leaving them particularly underfunded. 

By the time they reach 45, there is a 45% pension gap between men and women, according to government data. In real terms, this means men have around £88,000 in their pension on average, compared to £46,000 for women.

There are several important reasons for this. First and foremost, the gender pay gap means that women earn less. If you earn less, then you have less to contribute to your pension in the first place.

Secondly, women are more likely to take time out of work to pick up unpaid caregiving responsibilities – whether that’s for children or elderly parents. 

Some women also have to take time out of work during the menopause due to health challenges and a lack of workplace support. Often, this can happen just as they reach the height of their careers in middle age.

As well as taking a hit to their current earnings, these employment breaks result in a period where women aren’t contributing to their pension pots. Over time, this becomes more and more damaging, as they miss out on the compound returns they could have earned. In other words, the gap snowballs.

Katie Williams
Staff Writer

Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.

Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.

Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.

Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.