Making informed decisions

Gap in pension benefits between men and women widens

For many women, the decision to work part-time often coincides with important career and childcare milestones. While pension contributions may not be the deciding factor for this decision, it’s important to understand the long-term impact on pensions. This knowledge is crucial for good financial planning.

While raising pension contributions might be an option, it’s important to balance this against disposable income. Another option to consider is sharing the caring responsibilities with a partner, which can help spread the long-term impact on pension savings. It’s important to have a clear understanding of how part-time work may impact your pension and to make informed decisions accordingly.

Significant gaps
Recent data has once again highlighted the gender pension gap, which begins to widen significantly from the age of thirty-five and has revealed a significant gap between how much women pay into their pension compared to men.

Based on the analysis of workplace pension data for just over five million pension plans, the gap between women’s and men’s pension contributions for 35-39-year-olds is 21%, up from 18% last year[1].

Pension imbalance
This gap then increases to 24% for 40-44-year-olds, 27% for 45-49-year-olds, and a staggering 32% for 50-54-year-olds. The amount paid in pension contributions has a significant impact on retirement income. With women aged 60-65 years old having pension pots which are on average just over half (57%) the size of men’s pots at the same age, the gender pension imbalance persists into retirement.

If you are a part-time worker who has been automatically enrolled into a workplace pension scheme, you may want to consider increasing your monthly contributions if it is affordable. It’s important to understand that starting early allows a small contribution to build up over time.

Asset division
If you earn less than £10,000 per year, speak to your employer about your options for joining your company pension scheme. And if you’re thinking of reducing your working hours to help balance family life, consider whether it’s better for you or your partner to work part-time. As part of those considerations, look at which of you gets higher employer pension contributions.

When it comes to long-term relationships, keep pensions at the forefront of your mind, and think about how divorce or dissolution of a registered civil partnership might impact you. Sharing pensions as part of a divorce or registered civil partnership dissolution doesn’t happen by default, and it’s important to be mindful of how pensions fit into overall asset division.

Retirement plans
Another important factor in managing your retirement plans is to check your National Insurance record to see if you’re on track to get the full State Pension amount when you retire. You need a total of 35 years of National Insurance contributions, or, in some cases, you can apply for credits. If it looks as though you might be short, you might have the option to pay to fill in the gaps.

If you’re not working while looking after a child, you can get State Pension credits automatically until your youngest child is 12 years old if you are claiming Child Benefit. So, apply for Child Benefit even if your overall household income means you need to pay it back through a high-income Child Benefit charge.

Full pension
Lastly, talk to your employer about the policies they offer, for example, equal parental leave irrespective of gender, alongside salary exchange. It means employees who may only receive statutory maternity pay for part of their parental leave maintain full pension contributions.

It’s unfortunate to see that women are still facing a significant disparity in their pension savings when compared to men. It’s high time for meaningful change to address the gender pension gap, such as committing to equal pay for equal work, providing better support for part-time workers and implementing measures to help those taking time off for family care to avoid significant pension losses.

Source data:
[1] Aviva Workplace Pension Data based on a sample of just over 5 million workplace pension plans. Women compared to men. By age group. Percentage difference in mean total contributions paid in Jan 2023; and mean total pension pots in Jan 2023.