For International Women’s Day, trying to #BreakTheBias, here are my quick tips on how to close your own gender pension gap.
Shockingly, women on across the UK have almost 40% less in their pension pots than men, according to research by PensionBee. This gap in retirement saving doesn’t start out so big – 13% for under 30s – but becomes a gaping chasm by the time we get closer to retirement, widening to 46% for people over 50. Yet as women typically live longer than men, they actually need more money to cover their retirement.
More money, more pension
The harsh reality is that if you want more out of your pension, you need to pay more in. Women tend to earn less over their working lives, whether due to the gender pay gap, taking time out to raise children, or by working part time, so they have less to pay into pensions.
At least if you’re aware of the need to set extra aside for retirement, you can try to do something about it.
Grab any work pension with both hands
Thanks to auto-enrolment, most employees get signed up for a pension whether they like it or not.
Don’t opt out!
Turning down a work pension is like turning down a pay rise, because you’ll get free money added to your own pension contributions by your boss and by the tax man.
Pay extra into your pension while you can
Even if retirement seems a bazillion years away, it’s still worth starting a pension, because those early contributions really roll up over the years thanks to the miracle of compound growth.
In fact, see if you can afford add more, especially if your employer is willing to match contributions beyond the legal minimum. It’s worth stashing extra into your pension during your early years if there’s the remotest possibility you might take time out for children, or work part time, later in life.
Budget for pensions during maternity leave
Klaxon alert: discuss pensions with your other half before having kids. If one person stops work to stay home, often their pension contributions stop too. Yet the parent who keeps on working keeps raking in retirement savings.
As I said in this post, if you make a joint decision to have children, and a joint decision about who takes time out to look after them, then make a joint decision about how to fund pensions for you both. Tot up whether the family budget can stretch towards your retirement too. Even if you’re not earning anything at all, you are still allowed to pay up to £2,880 a year into a pension, and get 25p added in free money for every £1 you put in.
Hang onto your State Pension
The State Pension is hardly going to keep you in caviar and private jets, but don’t knock £9,371 a year, the current forecast for the full new State Pension. More than a quarter (27%) of women are rely solely on the State Pension to fund their retirement – almost twice as many as the number of men (15%).
To qualify for the full whack, you need to rack up 35 years in National Insurance contributions (NICs)
If you do take time out to have kids, and so aren’t earning and aren’t paying NICs, make sure to register for Child Benefit. Register even if your partner earns over £50,000 a year and the Child Benefit starts getting clawed back in tax.
Crucially, if you’re the person named for Child Benefit, you will get credits towards your National Insurance record until your youngest kid hits 12, which will help protect your entitlement to the State Pension.
Boost contributions in later life
As we get older, we’re likely to hit peak earning years. Some of our major costs may disappear, if student loans, childcare, uni costs and mortgage payments are no longer an issue. We may even have lump sums available from downsizing or inheritance.
If you want to close your gender pension gap, shovel spare cash into your retirement savings. That way, you benefit from the free money in tax relief, while knowing it’s not long before you can whip money out again.
For most people, the maximum you can pay into a pension is 100% of earnings, capped at a maximum of £40,000 a year.
But if you’re lucky enough to earn over £40,000, you may actually be able to pay in more. You can mop up unused pension allowance from the last three tax years and turbo charge your contributions, although you still can’t pay in more than you actually earn.
Make your money work harder
As well as trying to top up your pension, narrow the gender pension gap by making your money work harder. Check where your money is invested. Don’t leave it sitting in a staid default fund if you have years to go before retirement – you can afford to take more in risk in the hope of higher returns, knowing you have time to ride out stockmarket falls. Check your pension charges too. The more you pay, the more your pension has to grow just to stand still. Switching to a pension plan with cheaper charges helps you hang onto more of your own money.
Now – over to you. What have you done to help chose your gender pension gap? What are you doing now to make sure you can retire in future? Do share in the comments, I’d love to hear!