How women can max out their pensions and close 35% gender gap

The first official measure of the gender pensions gap has revealed a yawning hole in women’s savings.

Women reach age 55 with a third less saved into private pensions than men, according to figures published this week by the Department for Work and Pensions.

The data reflected much previous research, and the main causes are already well known: women are paid worse than men, and they spend periods of their lives carrying out vital but unpaid caring work.

It shouldn’t just be down to women to try to solve these social issues. Employers who still pay women less than men for doing the same work or keep them in lower paid jobs are certainly at fault.

And expectations that women should typically be the ones to sacrifice careers for family duties – including being the ones to care for elderly parents – should also be challenged.

But for individual women, it’s still worth trying to put your own finances in the best possible position for later life.

We round up tips from money experts on maxing out your pension below – and it’s advice that men worried about a shortfall can benefit from too.

1. Start early in life

‘The earlier you begin making payments into your pension, the more you’ll be able to benefit from compound interest’s beneficial effects as it builds up over time,’ says Chris Eastwood, chief executive of pension provider Penfold.

‘It doesn’t matter if you can only make little payments. Create a monthly payment plan for your pension now, and as your income increases in the future, you can increase it.’

2. Keep up contributions

‘Unexpected life costs and occurrences come up seemingly out of nowhere, and if you’re not careful, they can completely throw off the balance of your financial goals,’ says Eastwood.

‘The most crucial thing is to not let this discourage you. It’s totally fine if your contributions are lower than in past years. If this occurs, try not to compare and criticise yourself. Simply let it go and consider making a larger contribution the next year.

Alice Guy, head of pensions and savings at Interactive Investor, says: ‘When you’re struggling to pay the bills, lifting your head up and saving for the long term can seem an unsurmountable hurdle, but it’s worth remembering that even small extra amounts paid into your pension add up over time.

3. Catch up after career breaks

‘The reason most women take a career break is to go on maternity leave or reduce their working hours to take care of children,’ says Eastwood.

This disproportionately impacts women, and is one of the reasons they have smaller pension pots by the end of they careers.

‘You may not only have to deal with a pay gap, but your long-term professional prospects could also suffer. An earnings gap might result in a decrease in your pension benefits, including both state and private/workplace pensions,’ Eastwood continues.

Interactive Investor calculates that women’s pension wealth would reach £80,960 between age 45 to 49, if it carried on increasing at the same rate as men’s between ages 35 to 49 – but it only reaches £46,000 in reality.

‘This means women pay a £57,960 motherhood penalty on average in their 40s, as childcare costs and the gender pay gap kick in,’ says Guy.

There are ways to ensure you don’t miss out during maternity (or paternity) leave. 

Read our explainer on how to max out pension contributions while on maternity leave or boost them when back at work.

4. Make decisions with your partner

‘If one partner earns significantly more than the other and has a much bigger pension pot, it’s worth considering paying extra into the pension of the lower-earning partner,’ says Guy.

‘When you come to draw your pension, it’s not tax efficient for one partner to earn a lot more than the other and you could end up with a much bigger tax bill as a couple.’

‘Non-earners can pay up to £3,600 into their pension each year, including tax relief, and earners can pay into up to 100 per cent of their earnings, capped at £60,000 per tax year.’

Couples who take a joint approach to pension saving can end up far better off in retirement, though there are some snags particularly regarding tax which are explained here.

5. Increase contributions later on

‘If you’re older and your kids have flown the nest, then it can make sense to up your pension contributions,’ says Guy.

‘Contributing an extra £200 per month from the age of 50 could add up to £64,104 by the time you reach 67, assuming 5 per cent investment growth. 

‘And that £200 per month will only cost basic rate taxpayers £160 after tax as pension contributions are tax free.’

How to sort out your pension if you fear it’s falling short

1) If you are worried about whether you will have saved enough, investigate your existing pensions. Broadly speaking, you need to ask schemes the following questions.

– The current fund value.

– The current transfer value – because there might be a penalty to move.

– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement. 

Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die. 

Defined contribution pensions are stingier and savers bear the investment risk, rather than employers. 

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.

– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – these are widely available online.

2) You should add the forecast figures to what you anticipate getting in state pension, which is currently £203.85 a week or around £10,600 a year if you qualify for the full new rate. Get a state pension forecast here.

3) If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.

4) If you have lost track of old pots, the Government’s free pension tracing service is here. 

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.