RACHEL RICKARD STRAUS: My sticking-plaster solution to the pension gender divide

17 October 2019

We need systemic change. But in the meantime here's what we should do. 

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From reading to rock climbing, we all have different ideas about how we’d like to spend our retirement. 

But I bet there are a few things many of us share in common.

Having time to relax with friends and family without worrying about money. Working because we want to and not because we need to. Having the cash to pursue our interests.

There is one key factor that determines whether we can enjoy these things in retirement or not and it’s largely out of our control. It’s whether we’re a man or a woman.

The difference between the retirement incomes of men and women is currently around 40%, according to consultancy firm Mercer.

But what does this divide mean in practice? How do the retirement lifestyles of men and women differ?

The results of The Great British Retirement Survey offer some answers.

Our parent company, interactive investor, conducted the survey this year in collaboration with Moneywise and our sister publication How to Retire in Style.

A massive 10,000 readers and customers took part in the survey, sharing with us the reality of and their dreams for retirement. The results help us to paint a realistic picture of retirement today – and it looks very different for women and men. Because of the gender divide in retirement, almost half as many women as men (17% versus 30%) are confident they will be able to maintain their standard of living in retirement.

Women are also almost half as likely as men to work past retirement age for the enjoyment of it rather than because they need the money (13% versus 25%). As many as 12% of women expect a household income below £10,000 a year in retirement, compared with only 2% of men. The reason for this divide in financial fortunes is well documented and the result of a series of differences throughout our lives.

Women are more likely to take time out of work to look after children and elderly relatives, cutting their earnings and pension contributions in the process.

Women are likely to earn less than men throughout their working lives.

Women tend to live longer on average so have a longer retirement to fund.

In fact, the initiative Insuring Women’s Futures, established by the Chartered Insurance Institute, has identified a list of 12 ‘perils and pitfalls’ that endanger women’s financial stability. I highly recommend taking a look at its report.

There is plenty we could and should be doing to close this divide and help women towards richer retirements. For a start, we need better financial education for everyone, which Moneywise has championed over the decades.

This will help people take control of their financial futures. We also need better policies, for example changes to auto-enrollment so that it works better for the lower paid – who tend to be women. And we need changes in attitudes so that men and women feel they can take on equal caring responsibilities if they choose. 

We need systemic change and it will take time.

However, I can imagine that for young women at the beginning of their journey, this could seem a little disheartening.

We hope that young women today will not face the challenges of their forebears. But there is no guarantee and we need action now. I think it’s unfair that young women should have to take steps to counter the inequality they may face later in life, but sometimes you have to be practical.

So here’s one sticking plaster solution. If you’re a young woman, stick another £40 a month in your pension.

It won’t be easy, but this is what it could do for you. If between the age of 20 and 30 you made the minimum monthly contribution into your workplace pension plus an extra £40 a month, you could stop work for a decade and still end up with nearly the same pension as someone who didn’t take a career break but didn’t pay the extra £40.

It means you could take 10 years out of the workplace and not hurt your retirement prospects. The power of compounding means that money saved early on in life is more valuable than that saved later. 

Of course, saving more would help young men as well as women and would be invaluable to both whether or not they take time out of work. 

In younger life, you have time to lay the foundations for your dream retirement. But it’s never too late to do it. 

You can read the full report and figures here

Email editor@moneywise.co.uk

Twitter @rachel_spike

Post The editor, Moneywise, 8 Devonshire Square, Office 03W112, London EC2M 4PL