Young women risk a poorer retirement by opting out of workplace pensions

30 December 2019

New data reveals the age group most likely to put their pensions at risk. 

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Young women are putting their retirement income security at risk by opting out of workplace pensions, according to new findings from Royal London.

Analysis from the mutual insurer’s auto-enrolment records revealed that 10.5% of women aged 22-29 opt out of their workplace pension.

By contrast, only 8.1% of men in the same age group opted out of their company pension scheme.  

Women in their 20s and 30s face significant challenges when saving for retirement such as saving up to buy a home or leaving the workforce to start a family.

Often those who return to work after having children do so on a part time basis, reducing the amount they can put away into a pension.

The added financial pressure of managing childcare costs can also make it difficult for women to save for retirement.

Once men and women hit the age of 30, auto-enrolment dropout rates begin to even out.

After the age of 60, the picture changes again and more men tend to opt out of their pensions than women.

The table below shows the auto-enrolment opt out rates for men and women.

Age Group Women Men
16-21 3.1 2
22-29 10.6 8.1
30-39 8.6 8.2
40-49 7.9 7.9
50-59 11.4 11.1
60+ 29.2 31.6

Despite the eventual shift in dropout rates, women face greater risk to their pension saving overall by missing out on valuable contributions in their early years.

Helen Morrissey, pension specialist at Royal London said: “The data highlights a spike in women opting out of pension saving in their 20s and 30s, most likely as they face other commitments like childcare or saving for a house.

While this may seem like a good idea for them in the short term to fund other priorities, opting out of a pension will only lead to greater financial problems in the future.

Getting back into the habit of saving for later life is difficult for women if they have missed significant contributions so we need to do everything we can to encourage these women to stay saving for the long term.”

What is auto-enrolment?

Auto-enrolment is a government initiative to help people save more for retirement.

The scheme makes it compulsory for employers to automatically enrol eligible workers into a pension.

A percentage of your monthly salary is paid into a workplace pension, along with contributions from your employer and a top-up from the government.

Currently both you and your employer must contribute a total of 8% towards a pension.

The table below shows how auto-enrolment contributions have changed since they were first introduced.

Date Your employer's contribution Your contribution Total minimum contribution
6 April 2019 onwards 3% 5% 8%
6 April 2018 - 5 April 2019 2% 3% 5%
Until 6 April 2018 1% 1% 2%

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