Applying an annuity rate of around 7% at age 60 would convert these pension pots into an annual income of around £6,000 for women and £11,000 for men. It means women are left with £5,000 less each year.
These figures don’t include those who haven’t built up any private pension wealth at all. The gap rises to 62% when they are factored in.
“The government’s latest research paints a bleak picture for women approaching retirement,” said Rachel Vahey, head of public policy at AJ Bell.
“Although automatic enrolment has done its bit in creating more female pension savers, boosting the number of women who pay into a pension, the analysis clearly shows that the wheels come off women’s retirement savings when they start a family.
“The gap is much smaller at younger ages, at 22% for those aged between 25 and 29, but rises dramatically for older women.”
What’s behind the gender pension gap?
Several forces have conspired to create a stubborn gender pension gap.
One key factor is that women are more likely to work part time or become carers. If they are working fewer hours, that means less money going into the pot.
Part-time work generally means a smaller salary. This means you could miss out on being enrolled into your workplace scheme altogether, as companies only have to sign you up automatically once your salary hits £10,000. The onus is on you to request to join.
Time out of the workplace also creates gaps in many women’s contributions. This often comes at both ends of their career, with women disproportionately taking up the mantle to care for both young children and elderly parents.
A lack of flexibility and understanding can also force some women out of the workplace in their 40s and 50s as they deal with the medical implications of the menopause – often at a point in time when they are reaching the top of the corporate ladder.
Women already earn less as a result of the gender pay gap, meaning the problem is twofold. The pension gap then snowballs over time thanks to the way investments compound.
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Median pension pot by age for men and women
Age group
Men
Women
Gender pension gap (£)
Gender pension gap (%)
16-24
£7,000
£5,000
£2,000
26%
25-29
£15,000
£12,000
£3,000
22%
30-34
£36,000
£16,000
£20,000
56%
35-39
£36,000
£24,000
£12,000
32%
40-44
£58,000
£44,000
£14,000
24%
45-49
£100,000
£48,000
£52,000
52%
50-54
£102,000
£63,000
£39,000
38%
55-59
£156,000
£81,000
£75,000
48%
60-64
£99,000
£63,000
£36,000
36%
65-69
£89,000
£60,000
£29,000
33%
70-74
£100,000
£50,000
£50,000
50%
75+
£96,000
£25,000
£71,000
74%
Source: DWP estimates based on the wealth and assets survey from the Office for National Statistics (ONS). Percentages may not correlate directly with pension pot amounts due to rounding.
The gender pension gap is widening
Two years ago, the government calculated a smaller gap of 35% among those aged 55-59. This has now risen to 48%.
“The widening appears to be related to the move from defined benefit to defined contribution pension provision, which appears to be disproportionately affecting women's retirement outcomes more than men’s,” said Kate Smith, head of pensions at Aegon.
Defined benefit (DB) schemes were more common in the past, but are still widely used in the public sector. They are typically more generous than defined contribution (DC) schemes.
DB schemes pay out a guaranteed income in retirement, usually based on your salary and length of service. Meanwhile, the size of a DC pot depends on how much you contributed while working and how your investments have performed.
The gender pension gap rises to 75% among those who only have DC pots. It falls to 39% among those who only have DB pots.
“Considering that DC pensions are the future for most, it's deeply concerning that the biggest gender pension gap is for women aged 55-59 who only have DC savings wealth,” Smith said.
“Unless there are radical interventions to close the gender pay gap, address labour market inequalities and societal norms, this doesn't bode well for the future of women's pension equality.”
Five ways women can boost their pension
While the onus is on policymakers and employers to create a fairer environment for women saving for retirement, there are also some steps you can take to boost your own financial resilience.
1. Start building your pension at a young age
Building wealth is less about timing the market than time in the market. Start building your pension as early as possible, even if retirement feels a long way off.
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% of your salary, and your employer is obliged to contribute a minimum of 3%. You are free to opt out or to reduce your 5% contribution, but it is almost always a bad idea.
Opting out when you are young means you will have less in your pot when you reach retirement. It is not just your contribution that you lose, but also the opportunity for valuable investment returns. These can snowball over time due to compounding.
Opting out could also mean you lose your employer contribution, which is essentially ‘free’ money.
2. Increase your pension contributions
As well as maintaining your 5% pension contribution, you should consider upping your contributions, if you can.
Investing consistently over a long time horizon is the best way to build wealth. While it might be tempting to stash the cash in your bank account where you can easily access it, investment returns almost always beat cash over the long run, even when interest rates are high.
Even a small increase could have a significant long-term impact, as illustrated by figures we plugged into Scottish Widows’ pension calculator.
The calculator shows that a 25-year-old earning £30,000 could boost their pension by almost £40,000 by the time they turn 60, if they increase their annual pension contributions by 2% above the standard auto-enrolment level.
These calculations assume medium investment growth of 5% per annum, annual investment fees of 0.75%, and annual wage growth of 3.5%.
Scottish Widows recommends boosting your contributions by even more than this, if you can. The pension expert says 12-15% (rather than the standard 8%) could help you achieve a comfortable retirement. This includes your personal contributions, your employer’s contributions and tax relief.
3. Find out if your employer will match your pension contributions
If you pay more into your pension, some employers will match your contribution, up to a certain limit. Take hold of this opportunity if you have the chance. It is essentially free money and can help you narrow the pension gap.
4. Pay into your pension while on maternity leave, if you can
When you go on maternity leave, your employer will usually continue to make contributions to your pension based on your salary before you went on leave. This continues for at least 39 weeks, if you are entitled to statutory maternity pay.
Your personal contributions will be based on your maternity pay, though, which is likely to be less than your full salary. If you are in a position to top these up so they match what you were paying in before, it could be worth considering.
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.
It could be worth having this conversation before deciding to have children to ensure you are on the same page when it comes to your finances.
Research from Moneyfarm revealed that 42% of men would not be prepared to pay into their partner’s pension while on maternity leave, with 27% saying the woman’s pension is her own responsibility.
“These figures highlight a significant gap in financial support and shared responsibility within households,” said Carina Chambers, pensions technical expert at Moneyfarm.
“Encouraging open conversations about financial planning and the importance of supporting each other's long-term financial goals is a step towards achieving true gender equality. By working together, we can ensure that all women have the financial security they deserve, both during maternity leave and beyond.”
It is also worth remembering that a pension is a tax-efficient way to save and invest for retirement. As such, topping up a spouse’s pension is a good way to shield your collective wealth from the taxman.
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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.
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